The $900,000 Social Security Mistake

Recently I read a story in the Omaha World Herald about a woman in central Nebraska that passed away on her 110^th birthday. Upon reading this, I began thinking about the lifetime Social Security benefits someone would collect if they lived 110 years. Her husband passed away in 1975, so she spent the last 38 years as a widow likely receiving a Social Security survivor income benefit. The implications of her husband’s decision on when to take Social Security would have been profound.

Utilizing today’s rules, let’s examine how the age at which her husband elected to receive Social Security would have impacted her cumulative lifetime Social Security benefits as a widow. First some facts and assumptions:

His benefit at Full Retirement Age (66) would have been $2,000 per month
By electing at 62 he receives 75% of his benefit, $1,500 per month
By electing at 70 he receives 132% of his benefit, $2,640 per month
She collects a survivor income benefit for 38 years

Let’s look at the impact the timing of when her husband elected Social Security would have had on her lifetime survivor income benefits.

SurvivingSpouse’s Age	Cumulative Lifetime Benefit*(spouse elected @ 62)	Cumulative Lifetime Benefit*(spouse elected @ 70)	Difference
72	$18,000	$31,680	$13,680
80	$181,381	$319,230	$137,840
90	$443,528	$780,609	$337,081
100	$789,050	$1,388,742	$599,678
110	$1,244,465	$2,190,258	$945,793

*Assumes the annual benefit is increased by 2.8% annually due to Cost of Living Adjustments

The difference between electing at 62 and 70 would be more than $900,000 dollars!

Although this example may be a bit extreme, it’s obvious there can be a tremendous advantage to delaying the receipt of Social Security. For many retirees, outliving their money is a primary concern, and living well beyond life expectancy can turn concern into reality. Delaying Social Security can be a great way to hedge against that risk.

Consult a Professional

Unfortunately, most people make Social Security decisions without consulting a professional. You may be surprised to learn that the Social Security office is not allowed to give advice on strategies that would help maximize your potential benefit. An expert in Social Security planning can take into account variables such as your current age, life expectancy, and financial assets in order to help you identify an election planning strategy best suited to maximize your lifetime Social Security benefit.

Don’t miss out on tens if not hundreds of thousands of dollars in lifetime Social Security benefits by making an uninformed decision. Call or email us today to arrange a time to discuss your unique situation.

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Social Security Switch Strategies for Widows

Widows nearing retirement may be able to utilize one of two lesser known “claim and switch” Social Security election strategies in order to increase total lifetime Social Security benefits by as much as six figures. More information regarding the basic rules and requirements of survivor benefits can be found in the article Social Security Survivor Benefits.

Claim and Switch Strategy #1:

Claim your worker benefit at 62 and switch to your survivor benefit at 66

This strategy works best for a widow who has a benefit available on her own work record that is substantially less than her survivor benefit.

Jane is a widow planning to retire at age 62, and she would like to begin drawing Social Security.

Jane expects to live to age 90.
Jane is eligible for a $1,200 monthly benefit on her own record at age 66. If she elects early at age 62, the worker benefit would be reduced to $900.
As a widow, Jane is eligible to receive a survivor benefit of $2,000 at age 66. If she elects early at age 62, the survivor benefit would be reduced to $1,620.

Jane’s Age	Worker Benefit	Survivor Benefit
62	$900	$1,620
66	$1,200	$2,000

Given Jane’s life expectancy, she will receive greater lifetime benefits if she waits until age 66 to claim her survivor benefit. Jane can file a restricted application at age 62 to receive only her worker benefit ($900). At age 66 she can amend her claim to begin receiving 100% of her survivor benefit ($2,000).

Using this approach, Jane will receive $900/month from age 62-66 and $2,000/month until her death. Utilizing this little known “claim and switch” strategy, Jane will collect an additional $43,200 in lifetime Social Security benefits.

Claim and Switch Strategy #2:

Claim your survivor benefit at age 62 and switch to your worker benefit at age 70

This strategy works best for a widow with a benefit available on her own work record that is close to, or greater than, her survivor benefit.

Mary is a widow planning to retire at age 62, and she would like to begin drawing Social Security.

Mary expects to live to age 90.
Mary is eligible for a $2,000 monthly benefit on her own record at age 66. If she elects early at age 62, it would be reduced to $1,500.
If Mary waits until age 70, she will receive delayed retirement credits that will boost her worker benefit to $2,640.
Mary is also a widow and is eligible to receive a survivor benefit at age 66 of $1,800. If she elects early at age 62, it would be reduced to $1,458.

Mary’s Age	Worker Benefit	Survivor Benefit
62	$1,500	$1,458
66	$2,000	$1,800
70	$2,640	$1,800

Given Mary’s life expectancy, she will receive greater lifetime benefits if she waits until age 70 to claim her own worker benefit, as her worker benefit will have grown through delayed retirement credits. At age 62, Mary can file a restricted application (a widow could do this as early as age 60) to receive only her survivor benefit ($1,458). At age 70 she can amend her claim to begin receiving her own worker benefit ($2,640).

By utilizing this claim and switch strategy, Mary will collect an additional $140,000 between the ages of 62-70 as compared to a strategy of simply delaying Social Security to age 70.

Consult a Professional

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Diamonds Aren’t a Girl’s Best Friend, Delayed Retirement Credits Are!

Typically people nearing retirement age decide when to claim Social Security based on their current needs and what they see as their own projected life expectancy. People who do not anticipate outliving average life expectancies may claim Social Security benefits early. Conversely, those who expect to live a longer than average life may consider delaying their election.

Furthermore, many people fail to consider that, after their own death, their Social Security election decision may have a significant impact on their spouse. Social Security benefits often continue in the form of a survivor income benefit and can total hundreds of thousands of dollars. This may be THE most important factor as married couples decide when to claim Social Security.

(Men and women are both eligible for survivor income benefits. Statistically speaking, women are most often the surviving spouse. For the sake of simplicity, the surviving spouse will be referred to as “widow.”)

Delayed Retirement Credits

At full retirement age (FRA-66 for those born between 1943-1954), a person is eligible to receive 100% of his/her Social Security benefit, or Primary Insurance Amount (PIA). He/she can elect to begin receiving benefits as early as 62, but doing so will reduce the monthly benefit by 25%.

On the other hand, a worker can delay the receipt of Social Security benefits beyond his/her FRA, up to age 70. By doing this he/she receives what is known as delayed retirement credits (DRC). DRC accumulate at a rate of 8% per year for up to four years, for a potential maximum benefit increase of 32%.

Consider Jim and Linda Wilson. They are both 62 and contemplating when to claim their Social Security benefits. Jim is eligible for $2,300/month in Social Security income at FRA. His wife Linda is eligible for $300 on her own record at her FRA.

Due to his personal and family medical history, Jim feels strongly that he won’t live past the age of 77. Assuming he lives until 77, Jim’s cumulative lifetime Social Security benefits would be:

Election Age	Percentage ofPIA	Monthly Benefit	Cumulative Lifetime Benefitto 77*
62	75%	$1,725	$331,200
66	100%	$2,300	$331,200
70	132%	$3,036	$291,456

*In current dollars

Jim does not think he will live past 77, so if he only considers his own projected lifetime benefit, he may come to the conclusion that there is no benefit to delaying claiming Social Security beyond 62. However, Jim and Linda need to consider the impact his election strategy may have on Linda’s survivor income benefit. She is the picture of good health, has a strong history of longevity in her family, and thinks she will live until she is 92.

The Survivor Income Benefit

After the death of her spouse, a widow is entitled to “step into” her husband’s Social Security benefit, provided it would be an increase over her current benefit. Returning to the Wilson’s example, after Jim’s death at 77, Linda will spend the next 15 years collecting a survivor’s benefit. As illustrated below, her total lifetime benefit varies greatly depending on the age at which Jim elects to claim his Social Security benefits.

	Jim Elects at 62	Jim Elects at 70	Difference
Linda’s Monthly Survivor Income Benefit	$1,725	$3,036	$1,311
Linda’s Cumulative Benefit in Widowhood	$310,500	$546,480	$235,980(76% increase)

The numbers say it all – when deciding when to claim Social Security, a husband should not only consider his life expectancy, but that of his spouse as well. By taking into consideration their combined life expectancy, the Wilsons will receive an additional$235,000 in lifetime Social Security benefits! They say diamonds are a girl’s best friend, but maybe they should be asking for delayed retirement credits!

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Social Security Switch Strategy – Restricted Application

(When discussing Social Security, genders are interchangeable in all instances. For the sake of simplicity, the husband will be referred to as the higher wage earner.)

Waiting to claim Social Security benefits can result in undeniable advantages – the increase in the total lifetime benefits received can increase by as much as six digits. Although delaying Social Security increases your cash flow the most significantly, other strategies are available to you to provide monthly income benefits while you delay claiming your own benefits.

Basics of Restricted Application

Anytime you apply for Social Security benefits, the Social Security Administration assumes (unless you indicate otherwise) you are applying for all of the benefits available to you: your own worker’s benefit, spousal benefit, and/or widow’s benefit. Your total monthly income benefit is then determined based on the highest benefit (or combination thereof) for which you are eligible.

Once you have reached full retirement age (FRA- 66 for those born between 1943-1954), the Social Security Administration permits you to limit, or restrict, the scope of your application to exclude specific benefits available to you. This option is known as a “restricted application” and is only available to those at or past FRA (exceptions may apply for widow/widowers). The restriction must be made unequivocally at the time of application.

Restricted Application Strategies

Filing a restricted application allows you to claim one of the Social Security benefits (personal/spousal/widow) for which you are eligible while allowing the other(s) to grow and potentially earn delayed retirement credits (DRC). If you file a restricted application, you are essentially filing for one benefit with the plan to switch to a higher benefit at a later date.

The first scenario in which filing a restricted application may be advantageous is if the lower earning spouse has a worker’s benefit that is greater than, or could potentially grow greater than (through DRC), her spousal benefit. At FRA, she could restrict her Social Security application to exclude her own worker’s benefit, only claiming her spousal benefit. Her worker’s benefit would then earn DRC through the age of 70.

Consider the case of Jim and Linda Wilson. Linda is 66 (FRA) and is eligible for $1,000 on her own record. Her husband Jim’s benefit at FRA is $2,000 making Linda’s spousal benefit also equal to $1,000.

	Monthly Benefit Amount
Linda’sAge	Claim Own at 66	File Restricted at 66/Claim Own at 70
66	$1,000	$1,000
67	$1,000	$1,000
68	$1,000	$1,000
69	$1,000	$1,000
70	$1,000	$1,320

By restricting her application at 66 to claim only her spousal benefit then changing to her own benefit at 70, Linda has increased her monthly benefit by $320 (almost $4,000/year) while not foregoing any benefits from age 66-70.

A second instance in which filing a restricted application can result in a greater lifetime Social Security benefit is if the higher earning spouse is of FRA but wants to earn DRC by delaying his own Social Security claim. If his wife is 62 or older and has already applied for Social Security, he may benefit from filing a restricted application to receive only the spousal benefit on his wife’s record. He will receive a monthly spousal benefit until age 70, when he will switch to his own Social Security benefit that has grown by 32% through DRC.

Bob and Kathy Smith may benefit from this second “file and switch” strategy. Bob has a benefit of $2,000 at FRA. He wants to wait until 70 to draw his Social Security to earn the maximum amount of DRC. Kathy has already claimed her full Social Security benefit of $1,600.

	Monthly Benefit Amount
Bob’s Age	Claim Own at 70	File Restricted at 66/Claim Own at 70	Additional Benefit
66	$0	$800	$9,600 yr
67	$0	$800	$9,600 yr
68	$0	$800	$9,600 yr
69	$0	$800	$9,600 yr
70	$2,640	$2,640

By restricting his application to a spousal benefit only at age 66 then changing to his own benefit at 70, Bob increases his total lifetime benefit by nearly $39,000 without losing out on the opportunity to earn DRC.

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Social Security Survivor Benefits

Whether you have experienced the loss of a spouse recently or sometime in the past, you may be eligible for a Social Security survivor benefit. As with most Social Security benefits, the amount you will receive depends on a variety of factors including your age, the work history of you and your spouse, and your current marital status.

Basic Rules and Requirements

A widow’s eligibility for a Social Security survivor benefit is determined by a few basic requirements. In most cases, you must have been married for longer than nine months. If you remarry prior to age 60, you cannot receive a benefit as a surviving spouse while married. However, if you divorce or your current spouse dies, you are again eligible for a survivor benefit. If you remarry after you reach age 60, you will qualify for a survivor benefit regardless of marital status. Divorced spouses can also qualify for a survivor benefit, providing they were married longer than ten years.

If a widow meets the above requirements, she is eligible to claim Social Security benefits based on her late husband’s work record. This is true regardless of whether or not her husband had claimed his own Social Security benefits. The amount a widow is eligible to receive is determined by her age and her late husband’s Social Security benefit amount.

Surviving spouses are eligible to begin collecting a survivor benefit as early as age 60, though the monthly benefit amount will be at a reduced rate until the surviving spouse reaches full retirement age (FRA-66 for those born between 1943-1954). Survivor benefits are not eligible for delayed retirement credits (beyond those accumulated by the deceased) – the monthly benefit amount does not increase beyond full retirement age.

Let’s examine the case of Jim and Linda Wilson. Jim passed away before his FRA, but his monthly Social Security benefit amount at FRA would have been $2,000. If Linda elects to taker her survivor benefit when she reaches age 60, she will receive $1,430 (2,000 x 71.5%) each month for the rest of her life. This percentage gradually increases, until, at age 66 (her FRA), she will receive 100% of Jim’s $2,000 benefit.

Surviving Spouse’s Age	Percentage ofSurvivor Benefit	Survivor Monthly Benefit Amount*	Cumulative Lifetime Benefit to Age 92*
60	71.5%	$1,430	$549,120
61	76.3%	$1,526	$567,672
62	81%	$1,620	$583,200
63	85.8%	$1,716	$597,168
64	90.5%	$1,810	$608,160
65	95.3%	$1,906	$617,544
66	100%	$2,000	$624,000

*In current dollars

By waiting until FRA, Linda would collect an additional $75,000 in lifetime Social Security benefits. Unless you feel strongly that you will fall significantly short of your projected life expectancy, you should strongly consider delaying to maximize your benefits.

(In this case, Jim died before he claimed Social Security benefits. If he already elected Social Security benefits, additional complexities and calculations would apply.)

Benefit Election Strategies

Depending on a widow’s own Social Security worker’s benefit, she may benefit from utilizing one of the following lesser known “claim and switch” strategies in order to maximize her total lifetime Social Security benefit.

Your Own/Survivor: If a widow’s own Social Security benefit is relatively low compared to the survivor benefit, it may be to her advantage to file a restricted application at age 62 in order to collect a benefit on her own work record. At FRA, she could then switch over to the larger survivor benefit. By delaying the claim of the survivor benefit, the total monthly benefit will have increased to 100% of the survivor benefit amount. She will also collect income based on her own work record while she waits until FRA to collect her full survivor benefit.

Survivor/Your Own: Conversely, if the surviving spouse’s Social Security benefit is close to or exceeds the survivor benefit, it may be worthwhile to claim the survivor benefit as early as age 60 and switch to her own benefit at a later date. This allows the surviving spouse to receive monthly income based on her survivor’s benefit while allowing her own benefit to grow, collecting delayed retirement credits , until age 70. In order to utilize this strategy, the surviving spouse may need to file a restricted application.

For more details, check out our post Social Security Switch Strategies for Widows.

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Social Security Spousal Benefits

Most Americans look forward to claiming their own Social Security benefit in retirement. Did you know that if you are married, you may also be eligible for a spousal benefit? Spousal benefits are Social Security benefits available based on your spouse’s earnings record while s/he is still alive.

(Men and women are both eligible for spousal benefits. For the sake of simplicity, the husband will be referred to as the higher wage earner.)

Spousal Benefit

At full retirement age (FRA-66 for those born between 1943-1954), the Social Security spousal benefit is equal to 50% of your spouse’s primary insurance amount (PIA). You can claim the spousal benefit as early as 62, but the monthly benefit amount will be reduced to 35% of your spouse’s benefit. The reduction is gradually phased out as the spouse claiming a spousal benefit nears FRA.

Age of Wife	Husband’s Benefit Amount	Percentage Eligible	Spousal Benefit Amount	Annualized Spousal Benefit Amount
62*	$2,000	35%	$700	$8,400
63*	$2,000	37.5%	$750	$9,000
64*	$2,000	41.7%	$834	$10,008
65*	$2,000	45.8%	$916	$10,992
66	$2,000	50%	$1,000	$12,000

*When a person claims a spousal benefit before full retirement age, she is deemed to have filed for her own worker’s benefit as well as her spousal benefit. This locks in the monthly benefit amount for her own worker’s record, therefore making her ineligible for delayed retirement credits.

In order for a wife to claim Social Security spousal benefits, her husband must have applied for his own Social Security benefit. If her husband still wishes to delay taking his Social Security benefit, he can utilize the file and suspend strategy as explained here. Please note that only one spouse is allowed to claim a spousal benefit at any given time.

Consult a Professional

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Spousal Options for Inheriting an IRA or Retirement Plan

If you outlive your spouse, you’ll need to make a number of financial decisions that will have a lasting effect on your financial future. One of the most crucial decisions pertains to IRAs or retirement plan benefits.

As a spousal beneficiary of one of these accounts, you must consider your age, your spouse’s age, and your financial needs in order to make a wise choice. The following are your primary options:

1) Outright Distribution: This IRA option lets you take money out of the account thus relinquishing the tax-deferred status. The money becomes completely taxable in the year of the distribution. This method is generally not preferable unless you need funds immediately.

2) Inherited IRA: With this option, you elect to transfer the assets into an IRA in which you are the sole beneficiary. If your spouse was younger than 70½ at the time of his or her death, you can delay taking any distributions until the year in which your spouse would have reached 70½. This can be an appealing option if you were older than your spouse because this method allows you to continue to defer the assets in the IRA for a longer period of time.

If your spouse was 70½ or older at the time of his or her death, then you must begin taking withdrawals by December 31 of the year following your spouse’s death.

If you are younger than 59½, an inherited IRA can be a good choice because withdrawals are not subject to the normal 10% early-withdrawal penalty.

You can elect to turn an inherited IRA into a spousal rollover IRA (see below) if that method becomes advantageous.

3) Spousal Rollover IRA: With this option, you elect to treat the IRA or qualified plan as if it were always your own, so normal IRS distribution rules apply. The money may stay in the IRA and continue to grow tax-deferred until you turn 70½. At that point, normal Required Minimum Distribution rules apply.

This option makes sense if you’re not 70½ but your spouse was at the time of his or her death. It allows you to continue to defer any required distributions until you turn 70½, so you can take advantage of the longer tax deferral. The drawback to this method, however, is that normal distribution rules apply, so you will not be able to distribute money from the account without incurring a 10% penalty until you turn 59½. If you think you may need to access the fund prior to age 59½, you should consider using the inherited IRA method.

For more information on IRAs and retirement plan benefits, go to www.irs.gov, or call us so that we can help you determine your best course of action.

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Plan Your Giving

There are numerous complex tax rules regarding charitable contributions, so it is advisable to seek professional guidance to help you evaluate your own personal situation. Generally speaking, if you itemize your deductions on your tax return, gifts to qualified charities are deductible in the year they are made.

Most people simply write a check or donate cash for their charitable contributions; however you may be missing out on an additional tax savings that could help stretch your charitable dollars farther.

Rather than donating cash, a gift of long-term (held more than 12 months) appreciated stock or mutual funds will result in two tax benefits. You will be able to deduct the fair value of the stock as an itemized deduction, and you will also avoid the realized gains that would be associated with the sale of the appreciated shares.

For example, let’s say you plan to donate $20,000 to your favorite charity. To do this you plan to sell stock worth $20,000 you purchased several years ago for $10,000. After the sale of the stock, you would owe federal capital gains tax of 15% on the gain (state tax may also apply), resulting in a tax bill of $1,500.

If however you donate the $20,000 in stock to the charity, the charity will avoid paying taxes on the sale of the stock. You enjoy the additional benefit of never having to pay taxes on the stocks appreciated value resulting in a tax savings of $1,500!

Accelerate Charitable Contributions for Larger Impact

Consider giving more in years where you are subject to higher income tax rates for maximum benefit. If your income fluctuates from year to year, or you have a significant event that spikes your income for a single year, accelerating your giving may produce bigger tax savings. If you like the idea of accelerating your contributions from a tax perspective, but dislike the idea of uneven contributions from year to year, consider opening a Charitable Checkbook® at the Omaha Community Foundation (www.omahafoundation.org).

When you donate cash or appreciated securities to a Charitable Checkbook®, you are eligible for a tax deduction in the year the donation is made. You are then able to decide on the timing of your grants to charity – there is no requirement to direct a grant from your account in a given year. You can take the deduction in one year, and spread the gift to the actual charities out over several years.

With a little reflection and financial planning, you can become a more proactive philanthropist. Like Bill and Jane, you may find this approach more rewarding in a personal and financial sense.

Documents to Locate After the Death of Your Spouse

The death of a spouse leaves no shortage of paperwork, phone calls, and critical decisions. Being organized is one way to help mitigate possible frustrations you may encounter while moving forward. The following is a list of documents that are commonly needed to tend to your spouse’s affairs:

Letter of instruction
Death certificate
Marriage certificate
Last Will and Testament
Trust agreements and all amendments
Birth certificate
Social Security card
Pension/annuity information
Insurance policies
Bank account statements
Investment or retirement plan statements
Business documentation (partnership agreements, contracts, etc.)
Deeds or titles to any real property
Most recent income tax statements
Social Security statements
Military discharge papers

If you have a safe deposit box, be sure to check there for many of these important documents. You may also find it helpful to contact your financial advisor, insurance agent, accountant, and attorney to assist you in locating some of these documents.

We would love to invite you to learn more about Hiley Hunt Wealth Management and who we serve in Omaha, NE –Financial Planning and Investment Management.

Five Things NOT to Do Following the Death of Your Spouse

If you’ve read “Five Things to Do Following the Death of Your Spouse,” you know some of the things you should be doing. In this post I will cover five things NOT to do following the death of your spouse to help you avoid further complicating your situation:

Do not make any irrevocable financial decisions. The overriding theme of this list is to do no harm. If you are not sure, and deferring a decision to a later date has no material consequence, just wait.
Do not sell your home. Recognize that you are not selling just a piece of property but also a home with a lifetime of memories. You may ultimately decide that selling your home is best for you, but don’t make that decision while in the fog of grief. Try to give it at least one year.
Do not loan or give money to friends or relatives. As a general rule, you should always proceed with extreme caution whenever you are dealing with family, friends, and money. During this time, it’s best to not proceed at all. The loss of a spouse can have all sorts of financial consequences, many of which may not yet be readily apparent. Wait until you have a clearer picture of your own financial situation before you go down this road.
Do not invest life insurance proceeds or make material changes to your financial plan unless absolutely necessary. For most people, proceeds from a life insurance policy will be the biggest single inflow of cash they will ever have. You will have no shortage of people clamoring to give you advice on what to do with it. It’s important to remember that this money, as well as your decisions on how you handle it, will have a profound impact on the rest of your life. Be sure to work with a trusted professional to do a thorough review of your situation so that you can make an informed decision.

Do not give gifts to charity. You may be approached by your church or favorite charity about making a gift in the name of your spouse. This may even be something that you and your spouse talked about. Just remember that this can wait, and it can be addressed at a future date when you are in a better place.

Taking a Proactive Approach to Philanthropy

Jane smiled as she read the note from a recent graduate -a recipient of the scholarship fund she and her husband Bill had begun shortly after retirement. Passionate about education, the couple began giving annually years ago to their alma mater, the place where they first met as young teachers’ assistants.

Education is their lifelong passion. At the core of their belief system is a desire for all children to have access to higher education, regardless of financial circumstances. Thanks to some careful estate planning, Bill and Jane knew that the scholarship fund would continue beyond their lifetimes leaving a legacy of which they could be proud.

Bill and Jane are not unique; many of us hold philanthropic causes close to our hearts that we wish to further. However, many of us are reactive rather than proactive in our philanthropic pursuits; we dedicate our charitable resources to support charities of others rather than those about which we care most deeply.

In order to become a more proactive philanthropist, you will need to do some reflection and spend some time planning your course of action.

Identify Your Passion and Select a Charity

If you haven’t already, begin by identifying the cause(s) that matter most to you. The following questions may be helpful in this process:

What issues are you most passionate and excited about?
What people or events have most shaped your values and beliefs?
What is the most enjoyable charitable experience you have ever had?
What problems in the world do you find most troubling?
What injustices do you see on the news that make you angry?

After identifying a cause, the next step is to determine the charity/charities to which you will contribute. If you don’t already have an organization in mind, there are a number of resources available to assist you in selecting a charity. The websitewww.charitynavigator.org is an excellent online resource for finding charities with a national focus. The site allows you to browse charities by category, view top ten lists based on various criteria, or review thousands of charitable ratings. In addition to the information about specific charities, the site also offers a host of other tips and resources to help you make the most out of your charitable giving.

If you would like to concentrate your efforts locally, Nonprofit Association of the Midlands (www.nonprofitam.org ) will be launching an online database called Community Compass in the next few weeks. This comprehensive database will have publicly available data on every non-profit organization and program in Nebraska and in 19 counties in Southwest Iowa.

Plan Your Giving

There are numerous complex tax rules regarding charitable contributions, so it is advisable to seek professional guidance to help you evaluate your own personal situation. Generally speaking, if you itemize your deductions on your tax return, gifts to qualified charities are deductible in the year they are made.

Accelerate Charitable Contributions for Larger Impact

With a little reflection and financial planning, you can become a more proactive philanthropist. Like Bill and Jane, you may find this approach more rewarding in a personal and financial sense.

The Right Beneficiary

Over the years, one of the most common mistakes we have seen related to people’s financial affairs has been the incorrect naming of beneficiaries. Sometimes this is due to a lack of understanding around how a beneficiary designation works, or other times it may simply be due to an oversight. Whatever the reason, this can be a very costly mistake that is easily avoided.

Financial assets such as IRAs, life insurance policies, variable annuities, and 401k or other company retirement accounts are all payable based on the beneficiary designation. Many people do not realize that beneficiary designations supersede bequests made in a will or living trust. We often talk to people who believe they have all of their affairs in order because they recently created wills or trusts. Upon further review of their beneficiary designations, people sometimes find that those designations do not match up with the intentions laid out in their estate planning documents.

The most common reasons for these issues are due to people not updating their beneficiary designations after life changing events. Perhaps a sibling was named the beneficiary of life insurance policy prior to the insured’s marriage, or the contingent beneficiary of an IRA is missing the youngest child because they were not born when the account was opened. Whatever the reason, the best way to avoid these mistakes is to check your beneficiary designations on all relevant accounts on a regular basis.

When discussing beneficiary designations the focus is often on “who” gets what, but equally important may be “how” they get it. For parents with younger children, this aspect can be extremely important. We often like to ask new clients who have younger children whether or not they would be comfortable with their children receiving $1 million dollars when they turn 21 years of age. Generally the answer is a resounding NO! However, these same parents often name their children as the contingent beneficiaries of their life insurance and retirement accounts. Should both parents be in a fatal accident, the contingency we just discussed would quickly become a reality. This reality can be prevented with proper planning. For many parents, going through the estate planning process can be the solution to these issues. A common strategy for this situation is the creation of a trust upon the death of both parents. The trust is then named as the beneficiary of any policies or accounts that utilize a beneficiary designation. This then allows for the parents to both provide for and protect their children as they grow and mature into adults capable of handling their own affairs.

Another important reason for naming a beneficiary of an IRA or retirement account is it gives your beneficiaries the ability to take the distributions of those accounts over 10 years. If your beneficiary is your spouse, he or she has the option of treating your IRA as his or her own which would postpone required distributions until the age of 72. If your beneficiary is a non-spouse, regardless of age, he or she will need to begin taking distributions from that account no later than December 31st of the year after your death. However, if you have set things up correctly, your beneficiaries will be able to take those distributions over their own life expectancies which can dramatically enhance the value of the account due to continued tax deferred growth.

To accomplish this, you must have a “Designated” beneficiary on file. This means that you specifically name that person on the institution’s beneficiary paperwork. If you fail to name a beneficiary, someone will inherit your account assets but it may not be the person you would have wanted. The rules around inheriting an IRA are very complex and can be tricky. We would suggest you talk to us when dealing with this situation. With more and more people accumulating wealth in investment vehicles such as IRAs and 401ks, proper beneficiary planning has become a critical, yet often overlooked, component of a financial plan. Take time to talk with your advisor about this issue to ensure that your hard earned wealth is protected. You owe your beneficiaries that much.