IRS and Treasury Officials Question Use of Section 412(i) Plans. February 7, 2003 Senior officials from the IRS and the Treasury Department have recently expressed concerns, from public platforms, about defined benefit pension plans that are funded solely by insurance or annuity contracts and that purportedly qualify for the exception to the minimum funding requirements provided by Code section 412(i) (i.e., "412(i) plans"). The officials are addressing what they consider to be potentially abusive arrangements, including, but not limited to, arrangements where plan sponsors pay significant premiums for the first few years and then terminate the plans and roll out the policies when they have low cash values. The officials have indicated that issuing guidance in this area both prospectively and retroactively is a high priority. Storm Warning on Abusive 419A(f)(6), 419A(f)(5) and ESOPs. February 1, 2003 All the types of employee benefits listed above are statutorily sanctioned and can be used to provide legitimate and useful benefits to employees of our business clients. Yet all can have and are being pushed beyond the limits that Congress intended. Remember the scene in NETWORK where Howard, the just fired newscaster leans out the window and says, "I'm mad as hell and I'm not going to take this anymore!" To those wise enough to listen, that's what the Treasury and the IRS are saying, and they mean it! On Abusive 419A(f)(5) Plans: The IRS is also focusing on Section 419A(f)(5) plans under which plan sponsors attempt to take advantage of exemptions based upon the involvement of a labor union. The IRS has found situations in which workers covered by the plan do not even know they are in a union, and others where the employer is a member of the bargaining unit. On Abusive ESOPs: The IRS is lining up several avenues of attack to go after abusive employee stock option plans (ESOPs), particularly "paper ESOPs" that do not genuinely benefit employees and seek only to take advantage of the federal income tax exemption afforded ESOPs operating as S corporations. New Regulations Allow for Larger Reverse Mortgages February 1, 2003 Due to higher health insurance and prescription drug costs, along with the bear market and low interest rates, more and more cash-strapped seniors are using reverse mortgages to boost their bank accounts. As of the first of this year, seniors can now get more cash out of their homes thanks to new loan limits for federally insured reverse mortgages. The U.S. Department of Housing and Urban Development issued new loan limits for all FHA-insured single-family loans, including the Home Equity Conversion Mortgage, or HECM. An estimated 95 percent of all reverse mortgages are HECMs. The new loan limits vary by geographic area. The largest loan limits for single-family homes, which increased from $261,609 in 2002 to $280,749 in 2003, are available in major metropolitan areas. Rural areas have lower loan limits, however they increased as well from $144,336 in 2002 to $154,896 for single-family homes in 2003. The exact limits are usually broken out by county, and a complete list of the limits for your area are available on the HUD web site, www.hud.gov. According to Peter Bell, president of the National Reverse Mortgage Lenders Association, "Many more older homeowners are turning to reverse mortgages to access the wealth they've accumulated in their homes to obtain added income and enhance their retirement, by doing so, they can continue to live independently and comfortably right where they are." See our Reverse Mortgage Sales Concept. Are clients asking you about the government's proposed changes in retirement accounts? January 31, 2003 The U.S. Department of the Treasury released details on Friday about new savings vehicles proposed by the President. They include Lifetime Savings Accounts, Retirement Savings Accounts, and Employer Retirement Savings Accounts. Each of these savings vehicles would be available to all Americans, regardless of age and income, according to the proposal from the Treasury Department. See a comparison of the current and proposed retirement accounts. Financial Planning - Key Data for 2003 January 3, 2003 Believe it or not the New Year has rolled around and that means you'll need to update all those facts and figures in your head that no longer apply in 2003. The maximum 401(k) contribution has increased from $11,000 in 2002 to $12,000 in 2003 (assuming the individual plan has been updated). Several other items have been changed effective Jan. 1, 2003, due either to inflation adjustments or to the continued phase-in of the Economic Growth and Tax Relief Reconciliation Act. See the following links for these important changes. Income Taxes 2003 Tax Rate Schedule Retirement Plan Contribution Limits IRS Can Access Credit Card Records October 31, 2000 In a sweeping tax-evasion probe, the IRS was granted access Monday to thousands of MasterCard and American Express credit card accounts held by U.S. taxpayers in three offshore banking havens. U.S. District Judge Adalberto Jordan agreed with the IRS that cardholders may have violated U.S. tax laws and that their identities are not readily available from other sources. The court order allows the IRS to issue summonses for charge, debit and credit cards issued or paid by banks in the Bahamas, the Cayman Islands and the country of Antigua and Barbuda in 1998 and 1999. Investigators want to look at such things as car, boat and airline ticket purchases and hotel and car rentals. The investigation is one of the largest targeting offshore accounts in the history of the Internal Revenue Service. Bad Call?: High yields plus potential risk equals a thumbs down by advisers for callable CDs. October 11, 2000 While Providian Financial Corp. earlier this week unveiled a new callable certificate of deposit that is offered exclusively online with a higher interest rate, some financial advisers still see the callable CD as a loosely-disguised marketing tool. Callable CDs act like regular CDs, except that the issuer has the right to terminate the CD at any time. Many banks are showcasing this type of vehicle because it offers higher yields for investors; should interest rates drop, the bank can call the certificate. Ray Julian of Compass Capital pointed out that some advisers do not trust the institutional motives behind selling callable CDs. "Brokerage firms and banks are using them as a way to attract more business," he said. "It’s marketing to what people want rather than what people need." QTIPing an IRA January 6, 2000 New Revenue Ruling 2000-2 deals with a testamentary trust beneficiary of an IRA after the death of the IRA owner. The testamentary trust was named as the beneficiary of the IRA -- a potentially fatal error. The testamentary trust grants the trustee the power to compel payment of annual income and or minimum distributions from the IRA -- a saving grace. IRS Accepts Partial Annuity Exchanges January 2000 The Internal Revenue Service recently announced that it accepted the tax court decision in Conway v. Commissioner enabling a partial 1035 exchange of an annuity contract. (See "Annuity Q & A" for more details) Beware: Taxes can take a bite out of fund investors December 27, 1999 A recent study by KPMG Peat Marwick found that taxes reduce mutual funds' annual returns by 2.6 percentage points annually. Buy Term, and invest the rest? Most disregard this advice December 17, 1999 Less than one-fourth of those who purchase term insurance actually invest any of their premium savings. According to the new Harris Interactive poll, only 24% of term policyholders actually invest any of their premium savings. Furthermore, only 10% of those people who purchase term life insurance follow through and invest all of their premium savings. Individual Investors Still Expect Exceptional Returns for the Next Decade December 8, 1999 Individual investors continue to expect exceptionally high rates of return from their investments, according to an update of research first conducted two years ago by Opinion Research Corporation International. On average, investors expect to receive a 16% annual rate of return over the next decade, compared to a statistically equivalent 17.4% reported in the earlier study. Life Insurers Buying Riskier Bonds to Bolster Returns December 1999 From 1994 to 1998, bond portfolio credit quality in the life insurance industry declined as insurers sought higher yields from riskier bonds, according to a recent Conning and Company study. The study reports that while insurance companies are generally getting more conservative in their investments, they are making up for decreasing market interest rates by investing in riskier fixed income investments. The insurance companies are backing away from risk in mortgages, real estate and other asset classes but they are getting aggressive with bonds. Long-term Care Industry Still Tricky November 30, 1999 For buyers of long-term care insurance; or people wondering whether to buy it; there is good news. Consumers emerged victorious from the first class-action cases against a sleazy pricing practice. Under this practice, the insurer (often a small one) will tout a new policy at a bargain price. It will carry rich benefits, and might accept people who are in poorer health. They think they are getting a terrific deal. Two years later, however, their premiums might jump by 15, 20 or 50 percent. In another year, they'll jump again. After 10 years or so, consumers might have to drop their coverage because they can't afford to pay. At that point, it's probably too late to find LTC insurance somewhere else. This flagship (lawsuit and settlement) covers people who bought long-term care (LT) policies between 1984 and 1991 from Acceleration Life Insurance Co., National Standard Life Insurance Co. (Accelerations's Florida arm), and Commonwealth Life Insurance Co. The policies were sold in 23 states. Family Limited Partnerships November 29, 1999 Despite attacks by the Clinton administration and the IRS, these complex partnerships are thriving as an estate-planning tool. They certainly aren't new; they have long been popular as a technique for small business owners to protect assets from creditors. Lately, though, limited partnerships are being used for many other purposes, including even minimizing taxes on a family's investment portfolio. New Rules Benefit IRA Heirs Autumn 1999 The IRS has approved a change that will allow longer deferral to most heirs of IRAs. If an IRA owner passes away before making the first withdrawal, each heir may use his or her own life expectancy to determine when withdrawals must be made. The previous rules based withdrawals on the life expectancy of the eldest heir. < Back
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