One of the more difficult challenges facing the baby boomer generation is developing a strategy for Long Term Care. With the average costs of nursing homes or assisted living care facilities at approximately $100,000 per year, we see the following strategies being utilized to approach LTC:

• Pay out of pocket. Self-funding is for the financially fortunate. It is especially attractive to those who don't wish to buy Long Term Care insurance (see below) or who would be turned down for medical reasons. Paying out of pocket is becoming less practical for Americans as healthcare costs continue to outpace inflation.
• Qualify for Medicaid by spending down. For many people of modest means, even a short-term partnership policy may not make financial sense. People in this category would likely exhaust their assets and qualify for Medicaid coverage of any nursing home costs in a short-term time frame.
• Get a reverse mortgage. Some counselors advise covering Long Term Care costs with a reverse mortgage instead of taking out a home equity loan, which poses the risk of losing the home if payments can no longer be made. With a reverse mortgage, homeowners draw on the equity, but payment on the loan is deferred until they move out or die.
• Buy Long Term Care insurance. A Long Term Care policy pays a specified daily amount for nursing home care for a specified number of years or for the policyholder's lifetime. It typically covers care in other settings as well, such as the home or an assisted living facility.

The annual gift tax exclusion for 2019 remains at $15,000 per donor per beneficiary. A married couple can elect to split gifts, meaning that they can combine their annual gift exclusion and effectively give $30,000 per beneficiary. In combination, if the child is married, you may gift the annual exclusion ($15,000 if single or $30,000 if you elect to split the gift) to both the child and their spouse making an effective gift of $60,000. Any amount above these numbers is over the annual exclusion and will begin to reduce your unified credit.

There are several vehicles in which someone may gift to children. Our Advisors most frequently encounter gifts made for education or for transferring property. These two gift giving strategies are detailed below:

• Section 529 Plan: In a 529 plan, the plan holder makes a contribution that allows tax free withdrawals if used for qualified education expense (tuition, room and board, textbooks, etc.). Gifts to a 529 plan are limited to the annual exclusion of $15,000 (2018) per donor without using the unified credit. There is an exemption that allows a donor to make a lump-sum contribution to a 529 plan of up to five times the annual exclusion amount ($75,000) and avoid using any of the unified credit. Funds that are not used by the beneficiary may be transferred to another child and almost anyone can make a contribution (not just parents or guardians) into a 529 Plan. The maximum individual 529 plan account limit is around $250,000; however, this amount varies state by state commensurate with the estimated costs of qualified higher education expenses.
• Uniform Transfers to Minors Act (UTMA): A gift giver may transfer money, securities, or property to a minor (up to $15,000) without the minor incurring tax consequences of the gift until he/she turns the legal age. The minor takes full ownership of the gift immediately upon gifting and ownership is irrevocable.

Starting at age 70½, owners of a Traditional IRA, SIMPLE IRA, SEP IRA, or retirement plan account must begin making withdrawals, also known as required minimum distributions (RMDs), from their accounts. These withdrawals are mandatory and violations incur severe penalties. There is no RMD requirement for Roth IRAs during the lifetime of the original owner. If you have an inherited IRA, there are different rules for those inherited assets and you may be required to begin distributions by a certain date. Helping clients understand their RMD requirements is part of the comprehensive financial guidance we offer at Heck Capital Advisors.

We see more of our clients taking advantage of donor advised funds which provide a charitable contribution to help tax planning and provides the ability to grow money over time. This allows for more potential money to charities in the future and generally results in an immediate tax deduction when making a contribution of cash, securities, or assets. The advantage of this type of charitable giving is that it is a cost effective and there is no obligation to gift a certain percentage or amount each year. Moreover, with donor advised funds, one can diversify and invest according to his/her asset allocation preferences and objectives. Additionally, in order to help simplify our clients’ financial lives, we can also help facilitate the grant to the 501(c)3 organization once it is decided. Thus – tax efficiency, cost effectiveness, and simplification all apply when considering a charitable contribution through a donor advised fund option.

One of the most common mistakes we see is when assets have not been properly titled or when beneficiaries are not updated across various accounts. This is especially relevant over the course of a lifetime where big life events – such as divorce, birth of children, or remarriage – alter the designation of previously selected beneficiaries. Unfortunately, unless those beneficiaries have been updated, an ex-spouse may receive a retirement account at the account owner’s death instead of the account owner’s children or a new spouse if desired. The best way to avoid unintended consequences at death is to review your beneficiary information across all accounts yearly or more frequently following major life event changes.

Both Traditional and Roth IRAs are instruments for retirement savings. In the case of both Traditional and Roth IRAs, the maximum annual contribution allowed for investors under age 50 in 2019 is the lessor of $6,000 or 100% of compensation. A catch up provision of $1,000 is allowed for income earners over 50 years.

In a Traditional IRA, contributions grow tax deferred until withdrawal. Withdrawals made before age 59.5 are subject to a 10% penalty with limited exceptions. A Traditional IRA investor must take required minimum distributions beginning at age 70.5, which is also the cutoff age for contribution eligibility. Earners of all income levels may contribute to a Traditional IRA account.

In a Roth IRA, contributions are taxed when made and withdrawals are made tax free. There is no minimum age for making withdrawals and no penalties assessed upon withdrawal. As long as an individual has employment income, he/she may continue to contribute to their Roth IRA account; however, high income earners may be precluded from making contributions to a Roth IRA subject to income eligibility limits. Earnings may be tax free at the federal level as long as the Roth IRA has been open for a minimum of five years.