Why Whole Life Insurance from a Fraternal Society is the Smart Choice for Professionals Aged 25-50

In today’s complex financial landscape, whole life insurance is not just a tool for protecting your loved ones after you’re gone—it’s a cornerstone of long-term wealth building and financial planning.

For young professionals between the ages of 25 and 50, finding the right life insurance policy can be challenging, especially with the flood of options from large insurance companies. However, many are discovering that whole life insurance from a fraternal society offers the perfect blend of coverage, affordability, and long-term financial benefits.

In this article, we will delve into the advantages of whole life insurance, how it compares to other policies, and why fraternal societies may be the best option for professionals seeking both financial protection and investment growth. Plus, we’ll explore the living benefits that make whole life insurance an even smarter investment for today’s younger consumers.

What Is Whole Life Insurance?

Whole life insurance is a type of permanent life insurance that covers you for your entire life as long as premiums are paid. Unlike term life insurance, which provides coverage only for a specific time period, whole life guarantees a death benefit to your beneficiaries, no matter when you pass away. Additionally, it includes a cash value component that grows over time, providing you with both protection and an opportunity to build wealth.

Why Large Insurance Companies Might Not Be the Best Fit

While major, well-established insurance companies offer a wide range of products and automated services, they may not always be the best choice for young professionals. Here are some reasons why:

1. Impersonal Service

Big insurance companies often have an impersonal customer service experience, which can leave you feeling like just another policyholder. With a fraternal society, however, you can expect more personalized attention and support tailored to your individual financial needs.

2. Higher Premiums and Fees

Corporate insurance companies are typically for-profit organizations, which means they have higher overhead costs that can be passed on to customers in the form of higher premiums. In contrast, fraternal societies are nonprofit organizations, which often means more affordable whole life insurance premiums for members.

3. Limited Flexibility

Large insurers often use a rigid, cookie-cutter approach to life insurance. Fraternal societies, on the other hand, can offer more customized coverage options and flexible terms based on your unique financial situation, career stage, and goals.

Key Benefits of Whole Life Insurance

1. Lifetime Coverage with a Fixed Premium

One of the standout features of whole life insurance is that it provides permanent coverage. You don’t have to worry about expiring coverage or increasing premiums as you age, making it a more stable long-term investment compared to other policies. The fixed premiums ensure that your payments remain predictable, which is ideal for professionals who need budgeting certainty.

2. Cash Value Accumulation

A major advantage of whole life insurance is the cash value it builds over time. As you pay your premiums, a portion of them goes into an interest-bearing account that grows tax-deferred. This means your policy not only provides a death benefit but also acts as a savings or investment vehicle. You can borrow against the cash value for emergencies or life milestones, or even use it as a supplemental retirement income.

3. Dividends (For Some Policies)

Many fraternal societies and mutual insurers offer dividend-paying whole life insurance policies. These dividends are not guaranteed, but when paid, they can be used to increase your policy’s cash value, reduce your premiums, or be taken as cash. Over the years, these dividends can significantly increase the value of your policy.

Why Whole Life Insurance from a Fraternal Society is a Game Changer

1. Affordable and Flexible Coverage

Fraternal organizations operate on a nonprofit basis, which means they don’t have the profit-driven agenda of large corporations. This can translate into more affordable premiums and more flexible coverage options. For young professionals, this is a significant benefit—affordable premiums with the ability to modify coverage based on your changing financial situation.

2. Community and Support

Being a member of a fraternal society means you’re not just buying insurance; you’re becoming part of a community. Many societies offer member benefits like financial education, wellness programs, and even networking opportunities. This sense of community support can make a huge difference, especially when you need financial guidance.

3. Dividend-Eligible Policies

Fraternal life insurance policies are often dividend-paying, which allows policyholders to benefit from the society’s financial performance. This can further reduce premiums or enhance your policy’s cash value, making the policy even more of a long-term investment.

Living Benefits: A Key Advantage for Younger Consumers

In today’s market, living benefits are becoming increasingly important for younger life insurance buyers. These benefits allow you to access a portion of your policy’s death benefit while you’re still alive, offering additional financial security and flexibility in the event of unexpected circumstances. Here’s why living benefits are a game-changer:

1. Critical Illness Coverage

Many whole life insurance policies from fraternal societies include critical illness riders, which provide access to your death benefit if you’re diagnosed with a serious illness, like cancer, heart attack, or stroke. This can be crucial for young professionals, as it helps cover medical expenses and lost income during a period of illness.

2. Chronic Illness and Long-Term Care

If you become chronically ill or require long-term care, a chronic illness rider can give you access to your policy’s death benefit. This is a huge advantage for younger consumers who may not yet be thinking about needing long-term care but want to ensure they have financial options if the need arises.

3. Wealth Accumulation

Whole life policies offer cash value accumulation that grows tax-deferred over time. For professionals in their 30s and 40s, this means that you can start building wealth now while ensuring financial security for the future. Additionally, living benefits allow you to leverage the cash value for investments or other financial needs without needing to access traditional retirement accounts.

Why Whole Life Insurance is a Smart Investment for Professionals

For young professionals, whole life insurance from a fraternal society offers the perfect blend of financial protection, wealth-building opportunities, and investment growth. Here’s why it makes sense:

• Permanent Coverage ensures that your family and loved ones are protected, no matter when you pass away.

• Cash Value grows over time, providing you with a financial asset that can be leveraged during your lifetime.

• Affordable Premiums and dividends from fraternal organizations make it a cost-effective long-term strategy.

• Living Benefits provide immediate access to funds during illness or other life challenges, giving you flexibility in managing your health and finances.

By choosing whole life insurance from our fraternal society, you not only secure your future but also benefit from our community-centered approach to insurance.

The Smart Choice for the Modern Professional

For today’s professionals, whole life insurance from a fraternal society is more than just a safety net—it’s a strategic investment in both financial protection and wealth-building. With the right policy, you’ll have lifetime coverage, cash value accumulation, dividends, and living benefits that give you financial security today and for the years to come. If you’re between 25 and 50 and looking to make a smart financial move, consider exploring the benefits of joining a fraternal society and securing whole life insurance that works for you.

Check out some Whole Life insurance Options we offer below, or contact us to talk to someone directly.

Traditional


20 – Pay


Single Premium

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A Roth IRA is a retirement savings account that you set up for yourself, as an individual, rather than one that is set up for you by your employer, e.g., a 401(k) plan. Money contributed must be after-tax dollars. Although there is no tax benefit today, as with a traditional IRA or 401k plan, the contributions, interest and other earnings grow tax-free, and can be withdrawn tax and penalty free, provided you meet the rules described below.

A Roth IRA is an ideal savings option for anyone who would benefit from tax-free withdrawals in the future. In many cases, you can even open one for your children if they have some earnings. It can be an ideal tool to prepare them monetarily for the future, since whatever money they contribute will grow as long as the account is open. The Roth IRA is particularly beneficial for those that expect to be in a higher tax bracket, especially in retirement, when issues about tax-brackets, social security benefits and Medicare tax burdens may emerge.

Providence Association offers Roth IRA with a current 3.00% annual rate.

With a Roth IRA, there are no contribution age restrictions or compulsory withdrawals, i.e., Required Minimum Distributions (RMDs); even in retirement, after age 70½, you may continue to make contributions, provided you still have earnings and meet the income limitations.

Roth IRA Limits

The limitations on the amount you can contribute annually into a Roth IRA are outlined below. It is important to know that if you own a Traditional and a Roth IRA, aggregate contributions into both cannot exceed the stated annual limitations. The income limit changes from year to year so check the IRS’s website to learn what those limits are. 

Contribution Limits:

For the year 2021, taxpayers under 50 years old may not contribute more than $6,000.00, while taxpayers over 50 can contribute up to $7,00.00.

Income Limits:

Not everyone is eligible for this type of retirement account. If you make too much, you are out of luck. So take advantage now, if you can. In the year 2018 the limitations are as follows:

• Married taxpayers filing a joint income tax return cannot contribute into a Roth IRA, if their combined Adjusted Gross Income (AGI) exceeds $124,00 (in 2020); and $125,000 (in 2021
• The amount of the permitted contribution is gradually phased out where the joint AGI is between between $204,000.00 and $224,000.00 (in 2020); and between $205,000 and $225,000 (in 2021);
• Single taxpayers’ AGI limits are $124,001 – $139,000;
• Married taxpayers filing separately have severe restrictions of $0 – $10,000.

TIPS:

• If your employer offers a Roth 401(k) there are no income limits; you can certainly use that to put away after-tax dollars for retirement.

• Also, if you are on the cusp of the income limit, consider increasing your pre-tax 401k contributions. This will decrease your taxable income and your overall AGI in that year, and should, therefore, re-qualify you for the Roth IRA.

When to contribute

You have until the tax filing deadline of the current year to make contributions into your Roth IRA for the previous year, but the smartest option is to invest early, because the longer your money is invested, the more it will grow.

Roth IRA – Rules for Withdrawal

For unlimited tax-free and penalty-free withdrawals, keep the Roth IRA in place for at least five years and avoid it until retirement, or at least after age 59 ½. 

It is obviously best to keep the money invested until retirement, you will definitely need it later. Depending how much you save, it may be for everyday needs, a nice trip somewhere, or maybe to provide traditional family vacations to Wildwood. The sooner you start investing, the more chance you have to save enough for all of the above.

Still, Roth IRAs have relatively relaxed rules for withdrawing money early, which gives the investor peace-of-mind, in case something unexpected occurs.

Withdrawals of principle, or the contributions made, are allowed at any time, without tax or penalty, because you have already paid taxes on that money.

Withdrawals of earned interest and other income

Non-qualified withdrawals will be subject to a payment of income taxes and a 10% excise penalty tax.

You can withdraw tax and penalty free if:

• the account has been open for at least five years
• you are at least 59½ years old, or
  • dead and your beneficiaries are receiving the distributions from an inherited Roth IRA)
  • permanently and totally disabled
  • using up to $10,000 toward a first-home purchase

If you have not held the Roth IRA account for five years, but are taking the distribution under one of the items listed above, you may do so without penalty, but Uncle Sam still expects to be paid taxes on the interest and other earnings.

There are also some other exceptions that allow for early distributions without penalty. In these situations, the account has to be open for five years and you will need to pay taxes on the earnings and interest. These exceptions include:

• qualified education expenses
• medical expenses
  • that exceed 7.5% of your adjusted gross income for the year
  • or if unemployed, to pay health insurance premiums
• qualified reservist distributions (for members of the military reserve called to active duty)
• taking a series of substantially equal lifetime distributions
• an IRS levy

Next Step

Providence Association offers Roth IRA accounts that pay interest at the current rate of 3% annually. This rate will always compare favorably with standard CD’s and we guarantee a minimum of 2%, no matter how low CD rates might go in the future.

IMPORTANT NOTICE: FOR Additional important information (inter alia, Contribution, Adjusted Gross Income and other Limits and Qualifications) Affecting Your IRA, SEP IRA and Roth IRA Savings and Contributions for 2020 & 2021 (Click: Download Guide)

Click to read more about the benefits of Roth IRA and Traditional IRA accounts. 

Feel free to contact us for more information.

Disclaimer: This article is not intended as a substitute for legal, tax, financial, retirement, investment or other counsel or professional services and is not meant to be exhaustive of its topics. While precautions have been taken to make this article accurate, no responsibility is assumed for errors or omissions, or for damages resulting from the use of the information. Also, this information is not intended to be a substitute for specific individualized tax, legal, or investment planning advice. Where specific advice is necessary or appropriate, Providence Association recommends that you consult with a qualified tax advisor, CPA, financial planner, or investment manager.

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 The CARES ACT OF 2020: 

• Suspends Required Minimum Distributions;
• Enhances Access to and Helpfulness of “Coronavirus-related” Retirement Fund Withdrawals and Loans;
• Extends the Deadline for making 2019 IRA contributions to July 15; and
• Gives Additional Tax Incentives for Charitable Giving 

1. Suspends Required Minimum Distributions from the Retirement Accounts of All Taxpayers. 

General Rule:

A suspension of 2020 required minimum distributions (RMDs) is among the numerous provisions of the massive federal aid package, the Coronavirus Aid, Relief, and Economic Security Act or CARES Act, which the President quite recently signed into law. We saw this in 2009, during that time of economic disaster, and now here again Congress has provided relief by allowing RMDs due in 2020 to be waived. You do not have to take them; this will reduce your 2020 tax bill and otherwise provide some relief from the economic and social turmoil.

Applicability:

The suspension applies to certain defined contribution plans and to IRAs. This includes all traditional IRAs (even those, of course, that some companies might label as “IRA” “rollover IRA”, “standard IRA” or “traditional IRA”), SEP IRAs, and SIMPLE IRAs as well as 401(k), 403(b), and governmental 457(b) employer sponsored plans. 

In this regard, we remind the reader that the SECURE Act, as we had reported in an earlier post – 7 Highlights of the Secure Act, provides that individuals that turned 70 ½ years of age before 01 January, 2020 permanently retain the year in which they turned that age as their RMD “start” year.  Those that, on the other hand, turned or will turn 72 in the year 2020 or later have an RMD “start” year of the year in which they turned or turn that later age.  

There is some measure of confusion – because they are not expressly mentioned in the CARES Act’s remedial provision – regarding whether the RMD suspension pertains to inherited IRAs (Roth and traditional) and inherited 401ks. However, because the Act (1) is designed to provide broad relief to Americans during the pandemic emergency, and (2) is not a technical tax bill looking for revenue, we can expect the IRS and the government eventually to interpret it as applicable to inherited retirement accounts. Indeed, most writers addressing the topic boldly state that the RMD waiver applies to Inherited traditional and Roth IRAs. 

Interestingly, by contrast, the Act does expressly address inherited retirement accounts that subject beneficiaries to the five-year payout rule. The CARES Act extends the payout window by one year. Since 2020 is now excluded from the count, the statute simply states that, if one of the five years is 2020, beneficiaries get an extra year, effectively turning a five-year rule into a six-year rule. 

Notably, if the Act expressly grants relief to five-year rule inherited accounts, it likely also applies the same relief to all manner of inherited qualified plans and accounts. 

Happily, there is still time – to the end of the year – to make a final decision about taking RMDs from inherited IRAs and inherited employer sponsored retirement plans. Accordingly, the reader has the option to wait and to monitor the situation for further IRS and/or Congressional guidance or for even more definitive confirmation of applicability. In this regard, obtaining expert tax advice on this and all other matters raised in this article is highly recommended.  

Benefits:

Suspension of the RMD requirement will lend some assistance to an already beleaguered American public that is encountering ever harsher economic and social conditions. Among many benefits, the waiver will (a) reduce taxpayers’ income tax burdens, (b) allow them to keep their retirement monies (the RMD monies that were not paid out) in a productive tax-deferred growth environment, and (c) will allow investor portfolios to recover from stock and bond market losses. The public can take a breath on RMDs for a while, in order to allow recovery from savings and other economic maladies.  

On the other hand, despite an intuitive sense that one should exercise the option not to take RMDs, there are at least two circumstances, in which one might consider, nevertheless, making 2020 withdrawals from their IRAs. The first, of course, is the situation where one categorically needs the money (and has no other more desirable source) to sustain day-to-day life; if you need the money, you simply need the money. In this regard, many people have grown used to and rely upon receiving a steady income from their IRAs. The CARE Act does not create any downside. The RMD suspension simply puts control back in your hands. You can withdraw or not, depending on your own situation. There are no rules about which to worry. 

The second such circumstance is a situation where the taxpayer is destined to be in a very low tax bracket in this most trying year. It just might pay to get some of that IRA money withdrawn (the RMD amount or even more), or converted into a Roth IRA, to take advantage of today’s historically low tax rates. 

Caution:

As the foregoing and, indeed, all of our discussions about general, retirement and other savings amply demonstrate, each and every individual has his or her own unique positions, issues and circumstances. Everyone is well-advised to retain and to consult with expert tax, estate and comprehensive financial planning professionals, in order to develop individualized legal interpretations, approaches, plans and strategies.

2. Enhances Access to and Utility of 2020 Retirement Fund Withdrawals, so long as they are “COVID 19 Related”. 

In addition to suspending required minimum distributions (RMDs) for the year 2020, the CARES Act created a new exception to the 10% early withdrawal penalty tax under IRS Code section 72(t) for those who take retirement distributions prior to age 59.5. Specifically, in the year 2020, eligible coronavirus affected retirement plan participants and IRA owners can take penalty-free distributions from some or all their retirement accounts in an aggregate amount of up to $100,000. 

Notably, these rights are retroactive; pre-CARE Act year 2020 distributions to eligible taxpayers, to the extent that they do not already exceed $100,000, are absolved of the 10% early withdrawal penalty and enjoy the benefits associated with the new regime created for affected persons. 

In order to facilitate this measure of relief, moreover, the CARES Act (1) relieves these types of withdrawals of the 20% mandatory withholding for taxes that generally shrink most other retirement plan withdrawals;  (2) permits, but does not compel, administrator-employers to allow “in-service” (namely, while the person still works for the employer) distributions from qualified retirement plans to eligible plan participants; and (3) allows employer-sponsored plans to rely upon a plan participant’s certification that he or she is a coronavirus affected person. 

Not all retirement plans will allow these COVID-19 withdrawals, so check with your plan administrator in the case of an employer-sponsored retirement plan like a 401(k) to see if your plan will be offering this option. No “in-service” distribution restrictions exist for personal IRAs. 

To Qualify:

The withdrawal(s) must be COVID 19 related, that is, the taxpayer (or his or her spouse or dependent) must either have been diagnosed with COVID-19 or experience adverse financial consequences, as a result of quarantine, furlough, lay-off, reduced work hours, no available childcare, business closing or reduced business hours (if self-employed), or other factors determined by the Secretary of the Treasury.

Although, by compelling logical extension, COVID 19 affected taxpayers over the age of 59.5 should also be entitled to the above benefits for their own 2020 distributions up to an aggregate amount of $100,000, the statute does not expressly confirm this theory. Hopefully, again, Congress and/or the IRS will clarify this ambiguity. Readers are advised to proceed with caution and only with the advice of a tax professional. 

Unfortunately, but not surprisingly, Income taxes will still apply to these distributions, but the taxpayer may elect to spread the income tax burden “ratably”, which, presumably, but not definitely, means evenly over 3 years. Or, he or she has the option to repay (effectively to return, and thereby “rollover”) some or all of the aggregate distribution to an eligible retirement plan or plans within that same three-year period; this can be done in a one-shot deal or in partial repayments. These “rollover” repayments will reduce pro rata or, if the entire amount is repaid, will eliminate the tax burden. Appropriate income tax return reporting and adjustments must, of course, be made for that same three-year window of time.  

The rules surrounding these measures of relief from the full negative impacts of an IRA or retirement plan withdrawal are obviously rather complicated. This is especially true of the intertwined three-year tax deferral and distribution rollover rights and their associated income tax consequences. The same will likely be the case for relief qualification and documentation. The reader is well-advised to proceed only after consultation with a qualified tax professional. It is also advisable to look for further Congressional and/or IRS clarification and guidance.  

3. Doubles Access to and Broadens Repayment Terms of “COVID 19 Related” Employer-Sponsored Retirement Plan Loans. 

For those same Coronavirus affected individuals to whom the changes in the early withdrawal rules apply (see Part 2, above), the CARES Act offers several advantageous provisions regarding loans from qualified retirement plans. 

First, the CARES Act increases the maximum amount for loans that are made between the date of enactment of the CARES Act (March 27) and December 31, 2020, from the lesser of $50,000 or 50% of the vested account balance, to the lower of $100,000 or 100% of that same balance. 

The CARES Act also provides that impacted participants who have a retirement plan loan repayment due between March 27, 2020 and December 31, 2020 are not required to make any loan repayments for one year. And, at that point, they may extend the loan repayment period by one (in point of fact, extra) year; stated otherwise the plan participant has an extra year to pay back his or her loan, once payments resume a year down the road. 

As is the case with their withdrawal rules’ counterparts (See Part 2, above) the CARES Act allows, but do not require that Plan Administrators adopt the modified loan guidelines. Interested otherwise eligible readers should check with their employers about loan availability, in general, and Coronavirus enhanced loans in particular. Loans from personal IRA accounts simply are neither contemplated or permitted. There is no change to the prohibition against such loans. 

As was the case with withdrawals, retirement plan administrators can rely on an individual’s certification that the loan meets the criterion for being “COVID 19 related”.

4. The CARES Act Extends to July 15, 2020 the Deadline for 2019 Contributions to IRA’s. 

Please take a few moments to read our post on the IRA Contribution Extension.

5. Tax Deductible Charitable Contributions.

The Tax Cut and Jobs Act of 2017 effectively prevents the vast majority of taxpayers from itemizing deductions, due to both a dramatic increase in the amount of the standardized deduction and the $10,000 cap on the deductibility of SALT (State and Local Taxes). These tax reforms eliminated the ability for many to “write off” charitable contributions on their taxes. 

Easing this result a tiny bit, The CARES Act allows for a $300 above-the-line deduction for charitable contributions made to 510(c)(3) tax-exempt organizations. The deduction applies to monetary contributions and is, of course, available to all taxpayers, both to those who still itemize and to those that take the standard deduction. 

For those taxpayers that will be able to itemize charitable deductions on their 2020 tax returns, on the other hand, the Cares Act increases the 60% of adjusted gross income to 100% of same. For corporations, the 10% limit on charitable contributions is increased to 25% of taxable income. However, contributions to 509(a)(3) charitable organizations (commonly known as sponsoring organizations) and to donor advised funds are expressly excluded from these enhanced deductions. 

All of the above changes to the rules for charitable giving go into go into effect beginning in the 2020 tax year.

In our next publication, we will discuss the use of IRA accounts for charitable giving through a vehicle known as a Qualified Charitable Distribution. So-called QCDs that both reduce the taxable income in your IRA through a direct transfer to a bona-fide charity and rewards the gracious donor with an above-the-line full deduction. This method is a marvelous way to make charitable contributions in an era where below the line tax rewards are minimal or non-existent for most of our readers. 

Meanwhile, you can read more on the topic of charitable giving through life insurance.

Disclosure

Once again, we urge our readers to speak with their tax professionals before employing any retirement account or tax strategies. You can find more information at the IRS website.

Indeed, we publish the above discourse solely to provide general information, and not as professional, fiduciary or other manner of advice). You are encouraged to consult expert tax, estate and financial advisors and planners (1) with respect to any questions or issues, and (2) to determine how these new laws (and resulting regulations) may affect your personal situation and to consider setting appropriate plans and strategies in consultation with such expert advisors and planners. You are encouraged to study these developments, as they continue to occur.

This article is written by, our very own, Eugene Luciw.

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We now have until July 15 to contribute to our IRAs: The IRS has extended the 2019 IRA contribution deadline from April 15 to July 15, 2020. *

The extension. In line with Treasury Secretary Mnuchin’s universal extension of the individual federal income tax filing and payment deadline to July 15, the IRS has clarified that taxpayers have time until that same date to make 2019 contributions to their IRAs. (Normally, even if an IRA owner files for an extension of time to file a tax return, no extension for making a retroactive IRA contribution follows.)

Specifically, the IRS has posted the following on its website:

            Individual Retirement Accounts (IRAs) and workplace-based retirement plans 

            Q17. Does this relief provide me more time to contribute money to my IRA for 2019?

             A17. Yes. Contributions can be made to your IRA, for a particular year, at any time          during the year or by the due date for filing your return for that year. Because the due            date for filing Federal income tax returns has been   postponed to July 15, the deadline     for making contributions to your IRA for 2019 is also extended to July 15, 2020.

Does the extension also apply to Roth IRAs? 

Although the IRS does not expressly clarify the issue, recognized experts categorically state that the extension applies both to traditional (sometimes also called an original, ordinary or regular) IRAs and to Roth IRA’s. 

That the IRS’s use of the term IRA applies to both traditional and to Roth IRA’s is very much bolstered by the fact that, in all of its comprehensive publications about IRAs, the IRS uses the term IRA generically to refer to both types of IRA’s, Roth IRA’s and traditional IRA’s: 

“In this publication, the original IRA (sometimes called an ordinary or regular IRA) is referred to as a “traditional IRA.” A traditional IRA is any IRA that isn’t a Roth IRA or a SIMPLE IRA.”  

Good News. The extensions are extremely helpful for many reasons:

• taxpayers and their financial planners and tax advisers and preparers do not have to scramble, during turbulent social and economic times, to prepare and to file tax returns and payments;
• IRA owners will have more time to recover economically and to maximize their retroactive contributions, thereby enjoying the associated immediate and long term savings and tax benefits;
• nationwide shutdowns and stay-at-home rules have made it extremely difficult for persons and their advisers (who are often working from home with skeletal crews in their offices) to meet looming deadlines. 

Aim to make IRA contributions for 2019 if you can

We should all take advantage of this enhanced opportunity: Contributing to an IRA can help us shore up our retirement savings and to build a more secure future. While we should make sure to have emergency savings during these turbulent economic times, IRA contributions should also be a top financial priority. 

One administrative issue

Those who will be making 2019 IRA or Roth IRA contributions after April 15 (but by July 15), must make absolutely certain that the contribution is earmarked for 2019. Some financial institutions may have systems in place to code any IRA contribution made after April 15, 2020, as a 2020 IRA contribution. Watch out for this anomaly: Make sure you mark your checks as 2019 IRA contributions. This will clarify your intent: If one does not specify that a contribution is for a previous year, the financial institution is obliged to apply it towards the current year. Clearly marking your checks and deposit slips will avoid unintended poor results. 

SOURCES:

• Publication 590-A, Contributions to Individual Retirement Arrangements (IRAs)
• Why You Should Have a Roth IRA During Turbulent Times: Contribution deadline for 2019 is extended to July 15 due to the coronavirus, by Kimberly Lankford, AARP, (April 2, 2020);
• If you didn’t save as much for retirement as you wanted last year, you now have 3 extra months, by Tanza Loudenback, Business Insider, (March 24, 2020);
• Does the Extended Tax Filing Deadline Change The Deadline for 2019 IRA Contributions? – Retirement savers are in for some good news, by Christy Bieber, The Motley Fool,  (Mar 30, 2020);
• Those IRS coronavirus-extended deadlines apply to more than just taxes, by Liz Weston, (March 26, 2020)

To read more about our IRA, click here. Read this article, to see if the Roth IRA is for you.

     *The above discourse is provided for general informational purposes. You are encouraged to consult expert tax, estate and financial advisors and planners, (1) with respect to any questions or issues and (2) to determine how these new laws (and resulting regulations) may affect your personal situation and to consider setting appropriate plans and strategies in consultation with such expert advisors and planners. You are encouraged to study these developments, as they continue to occur.

        ** We provide links to these articles solely in order to provide information (and not professional, fiduciary or other manner of advice) for our readers and members; the authors’ opinions remain theirs exclusively. All of our readers and members are vigorously encouraged to set appropriate personal plans and strategies in consultation with their expert tax adviser(s) and financial adviser(s).

This article was written by Eugene Luciw, feel free to email him to say hello.

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Just a couple of weeks ago, Congress passed a massive bipartisan appropriations (spending) bill, in order to avert another government shutdown. Unexpectedly, it attached to it an item of legislation named the Setting Every Community Up for Retirement Enhancement Act (SECURE Act), which earlier this summer had passed the House with a 417-3 vote. (We initially reported this development in an earlier email blast, to join our email list, send Eugene an email.

President Trump has since signed this Act into law. Thus, the government is enacting major tax law changes to America’s IRA, Qualified Retirement Plan (401K, e.g.) and Inherited “Stretch IRA” structure that will take effect, on January 1, 2020, just a small number of days away.

We offer many savings vehicles if you would like to become a member.

Highlights of the SECURE ACT:

Increase to 72 of the Age for Beginning RMD’s

Currently Required Minimum Distributions from IRA’s and “qualified” employer sponsored retirement plans such as 401K’s must begin in the year an investor turns 70½. (If you work past age 70½, RMDs from your current employer’s “qualified plan” aren’t required until after you leave your job, unless you own at least 5% of the company.)

The SECURE Act pushes the age that triggers RMDs from 70½ to 72, means that many of our members can let their retirement funds grow an extra 1½ years before tapping into them. However, this relief applies only to individuals turning 70½ in the year 2020 or beyond. Those that are obligated to take RMD’s, because they turned 70 ½ in 2019 or earlier must continue to make the already existing and prescribed annual RMD withdrawals. 

No Age-Based Restrictions on IRA Contributions

Americans are not only living, but are also working significantly longer. Consequently, the SECURE Act repeals the rule that prevented taxpayers age 70.5 and older from contributing to a traditional IRA. As of January 1, 2020, wage earning members (provided they meet all other investment parameters and limitations) can continue to put away money in a traditional IRA, even if they work into their 70s and beyond.

There continue to be no age-based restrictions on contributions to a Roth IRA.

Inherited (“Stretch”) IRAs are Significantly Restricted

Pre- SECURE ACT law allows all designated beneficiaries (spouses and non-spouses) of an account owner’s IRA or qualified defined contribution plan such as a 401K to “stretch out” required minimum distributions over his or her lifetime. The IRS provides a chart-formula that prescribes each annual minimum withdrawal.  Such so-called stretch IRAs not only provide beneficiaries regular supplementary income, but also allow them to continue to enjoy perpetual tax-deferral of investment gains. The SECURE ACT, as summarized below, changes this result significantly. 

The SECURE Act’s new RMD provisions go into effect on Jan. 1, 2020. As such, beneficiaries of defined contribution plans and IRA account owner-participants who die before Jan. 1, 2020, and any existing inherited IRAs would fall under the existing generous RMD lifetime stretch rules. Anyone whose benefactor dies after Jan. 1, 2020 would fall under the new SECURE Act rules.

            “Specifically, The SECURE Act eliminates the current rules that allow non-spouse IRA beneficiaries to “stretch” required minimum distributions (RMDs) from an inherited account over their own lifetime (and potentially allow the funds to grow tax-free for decades). Instead, all funds from an inherited IRA generally must now be distributed to non-spouse beneficiaries within 10 years of the IRA owner’s death. (The rule applies to inherited funds in a 401(k) account or other defined contribution plan, too.)”

            “There are some exceptions to the general rule, though. Distributions over the life or life expectancy of a non-spouse beneficiary are allowed if the beneficiary is a minor, disabled, chronically ill or not more than 10 years younger than the deceased IRA owner. For minors, the exception only applies until the child reaches the age of majority. At that point, the 10-year rule kicks in.”  

Rocky Mengle, 10 Ways the SECURE ACT Will Impact Your  Retirement Savings, Kiplinger (December 19, 2019)   

Spouse beneficiaries are also exempted from the change; i.e., they are also considered to be “eligible beneficiaries”. The right of a spouse beneficiary to assume his or her deceased spouse’s IRA or to rollover Plan monies into her own rollover IRA also continues unaffected by the SECURE Act. 

Non-Person Beneficiaries

This article specifically does not address any affect that the SECURE ACT might have on non-persons (e.g., trusts and estates) that are or become IRA and Qualified Retirement Plan beneficiaries. You are encouraged to seek appropriate expert legal, tax and financial advice in and about these scenarios, options and issues and when considering a non-person beneficiary designation.  

Grad Students and Care Providers Can Save More

Annual contributions to a retirement account (IRA’s and/or Qualified Retirement Accounts such as a 401K’s) generally cannot exceed the amount of a person’s compensation or a prescribed maximum, whichever is lesser. The SECURE ACT changes current law by including amounts paid to aid the pursuit of graduate or post-doctoral study or research (such as a fellowship, stipend or similar amount) as compensation for purposes of making IRA contributions. This provides an immediate opportunity for students that do not otherwise earn a wage to start saving earlier. Similar rules and results apply to “difficulty of care” payments that foster-care providers receive through state programs to care for disabled people in the caregiver’s home.

Penalty-Free Child Birth or Adoption Withdrawals

In order to assist parents with covering birthing or adoption costs, the new law allows parents to withdraw from their 401K’s and IRA’s up to $5,000 each, without paying the usual 10% early-withdrawal penalty; provided, they make the withdrawals within a year following the birth or adoption of a child. Any such adopted child must be less than 18 at the time of the adoption, or be physically or mentally incapable of self-support. The penalty will still apply, however, if one of the parents is adopting their spouse’s child.

The parents will still owe income tax on the distributions, unless they repay the funds; recontributed amounts are treated as a rollover and not included in taxable income.

This exception to early withdrawal (prior to age 59.5) 10% penalties join others that already exist: first-time home purchases (up to a one-time $10,000 withdrawal); costs of higher education; and catastrophic medical expenses. 

BIBLIOGRAPHY:

You can find additional and more detailed information and additional effects, provisions and consequences of the SECURE ACT at these links:

 Rocky Mengle, 10 Ways the SECURE ACT Will Impact Your  Retirement Savings, Kiplinger (December 19, 2019)

Jamie P. Hopkins, SECURE Act Sets Up Inherited RMD Complexity for Advisors: Both sets of rules are important to know, because existing inherited IRAs are grandfathered into the previous rules”, Wealth Maangement.com (December 18, 2019)

The above discourse is provided for general informational purposes. You are encouraged to consult expert tax, estate and financial advisors and planners, (1) with respect to any questions or issues and (2) to determine how these new laws (and resulting regulations) may affect your personal situation and to consider setting appropriate plans in consultation with such expert advisors and planners. You are encouraged to study these developments, as they continue to occur. 

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American families do not save enough

According to a 2018 report from the Pew Research Center, 52% of American households were considered middle-class. The median income of middle-class households was $78,442 in 2016.  Most of these families are fully capable of living comfortable lives. Thanks to credit cards and loans, they can make large or numerous purchases today, and pay for them as they earn their steady income.

If we need a car, we usually don’t have to save enough money to pay for it; we get a loan with monthly payments which, hopefully, are within our means.

Although, most families also recognize the need to save for the proverbial “rainy day”, we have a “live for today” mentality.  Pressing, current “needs” and desires seem more important than future financial needs. These same desires constantly tempt us to spend what we have not yet earned.  Our parents and grandparents focused more on saving, whether in banks or stuffing the mattress; wealth was based on what they had put away.  Today, wealth is primarily measured by material possessions: nice houses and cars, fancy purses, shoes, jewelry, furniture, to name a few.

Just to put things in perspective, Bankrate’s March Financial Security Index survey, conducted by SSRS, who interviewed 1,003 respondents via telephone, stated that more than 1 in 5 working Americans aren’t saving any money for retirement, emergencies or other financial goals. According to this survey, 48% of Americans are only saving up to 10% of their income, while 21% are not saving anything at all.  

Common reasons why common savings plans fail:

• Low income – many families are living paycheck to paycheck, making purchases with credit cards
• Little things add up to become high expenses – going out to eat is the highest expense among today’s business professionals
• Low savings goals or no goals at all – savings in 401k are great, but alone, they are not enough to provide a comfortable retirement
• Inability to delay gratification – this is self-explanatory, and can range from electronics, to fancy restaurants, vacations or other unreasonable spending

Expenses – the main reason we don’t save more money

Modern families tend to live well above their means. Their expenses usually exceed their incomes. This can be the result of poor budgeting and purchasing habits, or a diminution in income. Whatever the reason, they save minimally and make frequent withdrawals from savings. Pledges to replace the money are rarely honored because there never seems to be anything extra to put away. So how can 10% saved, support our quality of life if the income stream dries up?

On the other hand, as incomes and credit limits increase, so do expenses. Ask anyone who makes over $100k per year, if their savings have grown drastically since their income grew.  Most will say that only their expenses grew.  A friend recently got a great job at a law firm, and her income more than doubled.  Her words stick in my mind: “I love my car, but I have to buy a new one; a successful attorney isn’t supposed to drive a 10-year old Saab”.  Unfortunately, this type of pressure is all around us, and our children. Kids get bullied over clothing, sneakers, and even reusing last year’s backpack. As, parents, we have to figure out how to save on everyday expenses, while also focusing on how to keep our kids from being a target for bullying. 

With all these excuses not to save, it becomes easy to put it off. Unfortunately, in the worst case scenario: our death, all the expenses and material wealth will be worth nothing for the family that lives on. 

Life insurance is an essential part of any savings plan.

By definition, cash value life insurance is the ideal method of saving money, with a guarantee face value is available for a family’s needs after the breadwinner’s death. A death benefit is guaranteed at the policy’s full face-value from the outset. Even if the policy owner pays only one premium, the plan is fulfilled the moment he or she dies. This means, the policy provides inheritance and income tax-free cash proceeds that can be converted into a regular income stream. Life insurance also creates liquidity and an immediate estate for the payment of final expenses, taxes, and any debt. It provides funds for education, emergencies, and the survivor’s retirement. 

In addition to death benefits, Cash Value from insurance provides living benefits. When a person or family needs money for emergencies or to pursue opportunities (business or education for a better career, etc.); it provides collateral for guaranteed policy loans and withdrawals. Upon retirement, the policy-owner can use this cash value to supplement retirement income and other financial needs.

Why I need to save more money

As I write this article, I try to be very objective, but being a mother of two little boys, I am incapable of being unbiased. I do not have enough saved for their future, but hopefully I still have time.

I hope and pray that I still have the time, but I don’t know anything for sure about the future, except that death is inevitable. 

No one wants to think about death, or prepare for it, especially at a young age.  We want to think about how to reach our goals, or provide for our family today and in the future.  It is not easy to think about the future without us in it.  In fact, it is heart breaking, especially if we have children.  I worry about lots of things: not providing enough for them to live comfortably when I’m gone, is in the top 3.

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How much is Enough?

How much is enough to live the life you want during retirement?  A good question to ask yourself at any age, but difficult to know early in life.  If you have spent the last ten, twenty or thirty years working full time, you may think that your retirement savings are well ahead of what you may actually need.  

According to Penny Hoarder, only “27.5% of people ages 21 to 34 have a retirement account” If you save $100 each month starting at age 25, and your retirement account grows by 5% each year, you will have nearly $172,000 by the time you are 67, but if you wait another 10 years, then you will only save just under $95,000.  By the time you are 50, you should save at least six year’ worth of your salary. 

That being said, f you have not started saving for retirement, call us to open an account policy.  In 2019, the maximum annual IRA contribution is $6,000 for people under 50; it’s $7,000 for people 50 and up. If you start contributing $6,000 a year at 37, and your account grows by 3.25% annually, you will have $307,000 by the time you’re 67. Also if you have enough to make additional contributions that exceed the annual maximum or an IRA and Roth IRA, our, tax-deferred, annuities have the same interest rate structure.   

Experts generally agree that we need at least 70% of our pre-retirement income to live comfortably during retirement. Of course, everyone has a definition of comfort, so 70% may not be enough – or, in some relatively rare cases, it may be more than enough. However, it is clear that any retirement savings plan must begin with us asking ourselves: “What do I want to do with the rest of my life?”  This vision, this dream, should then fuel our efforts to save enough.

Retirement Dreams

In this article, we offer a few scenarios with estimates to give you a better idea of how much you need when the time comes.  In each case, individually tailored savings plans are important. Providence can help you design an appropriate plan based on your current situation as well as your idea of the retirement dream. 

The scenarios presented assume that the couple has a pre-retirement income of $80,000, expects a pension of $28,000 annually and will spend all its retirement savings during their lifetimes. Obviously, if they want to do more, such as helping grandchildren with college or leaving a legacy, they will need to save more. The figures also assume a 6% rate of return on investments and a 3% inflation rate.

The Homebodies

This couple views retirement as a time when they can relax and enjoy each others’ company. They will work in the garden, do charitable work and read good books. The mortgage will be paid off and the kids will be out of college. No plans of any extra expenses as far as travel or purchasing fancy cars or boats. 

• How much is enough: 70% of their pre-retirement income, or $56,000 annually.
• Savings needed with pension: $432,000 for $28,000 annually
• Savings needed without pension: $864,000 for $56,000 annually

The Snowbirds

This couple is much like the homebodies, and view retirement as one long vacation. However, rather than stay at home, they spend their winters in the Sunbelt. Whether they purchase a condo, or rent, their retirement will have to be higher than the 70% mentioned above. 

• How much is enough: 90% of income, or $72,000 annually.
• Savings needed with pension: $679,000 for $44,000 annually
• Savings needed without pension: $1.1 million for $72,000 annually

The Globetrotters 

This couple sees retirement as the beginning of a bold new chapter in their lives. They plan to travel the world – all of it: Argentina in Spring; The Alps in summer; Tuscan and the Riviera in Fall; and Bali in Winter. Oddly enough this hectic schedule requires earnings greater than those enjoyed in pre-retirement years. 

• How much is enough: 110% of income, or $88,000 annually.
• Savings needed with pension: $926,000 for $60,000 annually
• Savings needed without pension: $1.36 million for $88,000 annually

The Part-Timers 

This is the couple who finds joy in their job; it gives them a sense of purpose. They would feel lost not doing what they love so they plan on working twenty hours per week, thereby earning some additional income in the process.

• How much is enough: 50% of income, or $40,000 annually.
• Savings needed with pension: $185,000 for $12,000 annually
• Savings needed without pension: $617,000 for $40,000 annually

Reality – Life is Expensive

Now lets look at reality, life is expensive. You may fit the Homebodies category, but there are things that you want to possess to be comfortable.  For example a nice pool, or a vacation home on the beach for your grandchildren to visit during the summer. Or maybe you may want to sponsor a family vacation to a nice resort in the Poconos. You may want to donate to churches or charities. You may even like fancy clothes, purses, TVs or computers.  Just because you are retired does not mean that you should not be able to buy yourself some toys. There is also the possibility that you want to be a Homebody now, but when you get to retirement, your dream may change. So in reality, you will need to save more than the above amounts to have a little extra wiggle room.  

Retirement Expenses

The above calculations do not take into account some major expenses that you may encounter in retirement, including healthcare costs, existing debt, and taxes.  According to an article in the Motley Fool, “retirement healthcare costs range from $285,000 to over $363,000 for a 65-year old couple retiring in 2019.”  Also, taxes do not go away during retirement. Unless you saved exclusively in Roth Accounts, for instance, you will be taxed by that year’s tax brackets on amounts you withdraw from your retirement accounts. Taxes will also be due on your pension, property, investment, dividend and other income. 

It is absolutely possible to reach your retirement goals if you start investing your extra income today.  Although there are many investment opportunities, an IRA, Roth IRA or annuity are guaranteed forms of retirement saving that bear no risk. So even if you decide to be a bit risky with your investments, it is a good idea to place a significant portion of your retirement savings into these plans.  This way, no matter what happens with the stock market, you will still have enough to live your retirement dream.

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There is nothing more morally fulfilling than helping someone or donating to a charity.

There are thousands of charities that help people, children, animals and many other causes. If you financially have the ability to donate, a life insurance policy will maximize all tax and estate benefits at the least cost to to you and to your beneficiary.

Naming the Charity as a Beneficiary

This is a very simple method for charitable giving. Whole life insurance is designed to provide a death benefit larger than the monies invested into it thus the gift to charity is expanded – it is larger than the outright gift of the monies invested into it would otherwise have been. Because the policy will not have been transferred outright to the charity, the proceeds are subject to estate taxes. However, the unlimited federal estate tax charitable deduction will completely offset that estate tax liability.  In an unexpected financial pinch, you can remove the charity as beneficiary and enjoy the fruits of the policy for yourself and your heirs.

Transfer of a New Life Insurance Policy to Charity.

An absolute assignment (gift) of a new life insurance policy on the donor’s life can be made to the charity, in which case the charity would also be named as the irrevocable beneficiary. This will not only award the charity the significant expanded gift of the death benefit, but will also insure that that gift is given, even if the donor meets an untimely death. The gift is both expanded and guaranteed. By the same token, the donor can deduct the premiums, thereby dramatically reducing the cost of his gift. Viewed from another perspective, the donor can make a dramatic gift on an installment plan and also enjoy the deductions that are created by the payments.

Transfer of an Existing Life Insurance Policy to Charity.

Those insureds that might have lost a direct need for life insurance can elect to donate an existing life insurance policy to a charity. This will create an immediate ordinary income tax deduction in the amount of the policy’s cash value and will also generate charitable deductions in the amounts of future premiums paid. This is a very desirable alternative to cash surrendering the policy and incurring the ordinary income tax consequences of such an action.

Immediate Payment to the Charity Outside of Probate and Estate Taxes.

If the donor survives for three years after donating a policy to charity, the death benefit will be payable to the charity directly, immediately upon the donor’s death, without the hassles of probate and without the imposition of any estate taxes.

Life Insurance Can Cover the Value of Large Charitable Gifts of Property.

Many of our members might want to make significant one-time contributions of real or personal property, but decide against them because they worry about disinheriting or upsetting their heirs. Will their children have sufficient funds for emergency or lifestyle needs? Will there be enough for the grandchildren’s educations? Will the heirs feel slighted if money is left to charity instead of to them? One solution is to purchase life insurance to cover the gap. Each year the donor member would not only have the joy of charitable giving, but would receive an appropriate charitable deduction, which benefit would help defray the future costs of the annual premiums.

Annuity Savings Plan Gift.

Donors that might need a supplemental income stream can make use of an annuity for his or her charitable giving plans. The donor would place his or her gift into an annuity and, at the appropriate time, request an income stream from it. Your Providence representative can design an income stream that will guarantee an ultimate sizeable gift of principal remaining after the donor’s death. As an appointed irrevocable beneficiary, the church or charity would receive the annuities assets, after it has paid an income stream to the donor.

Links to Donate:

http://ukrarcheparchy.us/donate

Donate

To open an account, please contact us.

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Unprecedented numbers of Americans are entering the homestretch toward retirement. Born in 1946, the first of approximately 75 million “Baby Boomers” are over 70. Even the youngest of the generation, who are “50-something”, are thinking about retirement. Although today’s boomers have accumulated more wealth than previous generations, they still wonder: Have we saved enough? How much is enough? How do I set a budget for my years as a “pensioner”.

Other reasons for concern stem from alarming issues regarding Social Security retirement pensions. Even as the government began imposing ever-increasing tax burdens upon such benefits, it also increased not only the full retirement age for many Baby Boomers and their descendants, but also the maximum income level from which FICA taxes are being extracted. And still there is no guarantee that Social Security will protect future generations. It is reasonably certain, however, that significant limitations will continue.

There can be but little doubt, therefore, that Americans must increasingly rely upon personal retirement savings and budgeting plans. There is no choice but to use those tax-deferred and tax-free retirement savings tools that the government provides to the public: IRAs, 401(k) plans, SEP and SIMPLE plans; and Annuities.

Annuities are a great way to save for retirement and to ensure that your money lasts as long as you. What is more, wrapping that annuity into an IRA (traditional or Roth) will further enhance the already generous tax treatment, which the Federal and State authorities afford to annuities. Read on:

Funding the dream: How much is enough? 

The following article explains how the retirement deficit is growing all over the world, Bloomberg – World’s retirees risk running out of money a decade before death.

Plan for Retirement

An individual Retirement Account (IRA) is one of the best and easiest ways to save for the future. IRA”s have been greatly enhanced by new legislation that brought significant changes to Traditional and Roth IRA”s.

Depending on the type of IRA one chooses, the interest earned may either be tax-deferred or tax free and the contributions made may even be tax-deductible (Consult your tax advisor to determine your opportunities). The effective growth rate (up to 5.30%) of a 3.25% tax-deferred or tax-free IRA or annuity, as offered by Providence, guarantees a rapid accumulation and compounding of savings. The absence of any loads (administrative fees or charges) makes sure that every dollar invested with Providence works for the client.

Traditional IRA’s

A traditional IRA allows an investor to deduct all or part of his IRA pension contribution directly from taxable income. No taxes need to be paid on the interest earned on an IRA, until the client withdraws funds. Penalties may be imposed for early withdrawals (before age 59.5); however, tuition costs, long-term disabilities, a first time home purchase, and/or catastrophic medical expenses qualify depositors for early uses of funds.

Enhancements made to the Traditional IRA also include increased contribution limits and an increase in the Adjusted Gross Income levels for active participants of employer sponsored retirement plans.

Roth IRA’s

Eligible taxpayers can make nondeductible contributions to a Roth IRA which features tax-free withdrawals. Contribution limits for IRA”s in this tax years are $5,500, or $6,500 for participants age 50 and older. Penalty-free early withdrawals are available for tuition and qualified first-time home purchases.

Leaving Your Job? Providence arranges and accepts 401k Rollovers.

For those who are leaving or retiring from a job, choosing what to do with an IRA or 401 (k) retirement plan payout is critical. Current IRS laws make the choices more complicated and critical: Upon leaving a job with a 401k or similar retirement savings plan, a 20% federal tax withholding requirement (or even a penalty) is levied against any payout not transferred into an IRA or a new employer”s pension plan. Happily, Providence can arrange for a tax and penalty free rollover of its clients monies.

Annuities Offer Supplemental Tax-deferred Savings Opportunities

Those who do not qualify for an IRA, or who wish to enhance retirement savings with additional monies, should open a Providence Annuity. This will save on taxes and still earn our high current yield of 3.25%. Annuity plans supplements IRA and other pension savings. The federally approved tax deferred features of annuities afford major investment advantage for the young and for retired pensioners.

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