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​Hatching Your Retirement Nest Egg

Much of the focus on retirement planning centers around accu- mulating a nest egg large enough to help provide income to fund a comfortable retirement lifestyle. After all, there’s no sense worrying about how to get money from a retirement nest egg before the egg is ready to be “hatched.” Or, is there?
Some complex tax laws prevent direct access to funds in retirement plans, such as employer-sponsored 401(k) plans and traditional Individual Retirement Accounts (IRAs), providing two potential tax traps for the unsuspecting The trick, however, is to be able to crack these tax law “shells” without damaging the egg inside.

Tax Shell #1
For example, if you are over age 55 and are retiring or being terminated from your job, you can take a lump-sum distribution from a qualified plan, e.g., a 401(k), without penalty. This provision, however, does not apply to traditional IRAs. Keep in mind that such a distribution would still be subject to taxes at your ordinary income tax rate.
A second exception to the penalty is allowed when withdrawals are taken in “substantially equal periodic payments.” There are three IRS-approved methods for determining these payments—the life expectancy distribution method, annuitization method, and the amortization method. Distributions using these methods must continue for at least five years or until age 59-1⁄2, whichever comes later.

Tax Shell #2
The second “shell”—the too little tax trap—involves required minimum distributions (RMDs), which generally begin at age 701⁄2. Individuals (other than certain owner-employees still working beyond age 701⁄2) are allowed to delay distributions from their qualified plans and tax-sheltered annuities (TSAs)—but not from traditional IRAs. If you fail to withdraw the required amount, a 50% penalty is assessed on the shortfall. New rules finalized by the Internal Revenue Service (IRS) in 2002 simplify the calculation of RMDs and decrease the required distribution amounts. As always, there is no penalty for withdrawals in excess of the required minimum.

Before Your Eggs Are Hatched
Individuals who have accumulated substantial assets for retirement may want to calculate various income scenarios to help project future withdrawals from their retirement account(s). “Running the numbers” in advance may also help enable retirees to avoid potential tax traps as they prepare to hatch their retirement nest eggs. 

Tax Shell #1
The first “shell”—the too soon tax trap—comes into play if you withdraw money from your qualified retirement plan or IRA before age 591⁄2. Not only will any such withdrawals be taxed as regular income, but a 10% federal income tax penalty may also apply unless you qualify for an exception to the penalty.

How to Avoid Becoming a Victim of Identity Theft
​Identity theft is one of the fastest growing crimes in the United States, with as many as 750,000 Americans becoming victims every year according to government estimates. Identity theft is a type of fraud in which a thief uses your personal information to conduct transactions in your name. Criminals may, for example, appropriate your identifying details to open or empty bank accounts, obtain credit cards, or take out loans.
There are steps you can take to reduce the risk of having your personal details stolen, as well as ways to detect a theft early and minimize the damage done to your credit.

  • Monitor your credit reports regularly for any suspicious transactions. Each of the three major credit rating agencies, Experian, Equifax, and TransUnion, are obligated to provide consumers with a free annual credit report upon request. You can access the reports through a website co-sponsored by the agencies, www.annualcreditreport.com.
  • A thorough review of these reports, also known as credit file disclosures, should alert you to any unusual activity.
  • Do not provide sensitive data in response to e-mail or telephone solicitations. If you are interested in an offer, take down the caller’s contact information and verify that the company is legitimate before revealing your personal details. You can bar telemarketers from calling you by registering your phone number with the Do Not Call Registry at www.donotcall.gov.
  • Filter out unwanted e-mail by installing anti-spam software on your computer. To protect your computer, install firewall and antivirus software programs that include automatic updates. Use a secure browser when conducting online transactions.
  • Invest in a mailbox with a lock or rent a P.O. box. Criminals have been known to intercept confidential correspondence and offers from financial services companies. Also, store sensitive information in a secure place in your home.
  • Destroy records containing private financial information by tearing or shredding, and do not dispose of credit card receipts or ATM statements in public trash receptacles. Thieves have been known to “dumpster dive” to obtain the details they need to commit fraud.
  • Protect your accounts with passwords or access numbers that cannot be easily deduced. Avoid using your Social Security number, your birth date, your phone number, your mother’s maiden name, your children’s names, or a series of consecutive numbers. Never carry your Social Security number or passwords with you.
  • Before disclosing identifying information to businesses, employers, or other institutions, ask how the information will be stored and handled.
  • Keep close track of your credit and ATM cards. Check your credit card and bank statements carefully for any suspicious purchases or withdrawals.
If you have reason to believe your identity has been stolen and misused, report the theft immediately to the fraud department of one of the three major credit bureaus, asking them to place a “fraud alert” on your file. This alert will prompt creditors to contact you before allowing a new account to be opened in your name or an existing account to be altered. Calling just one bureau is sufficient, as the company you contact will report the problem to the other two bureaus. After placing the fraud alert on your file, you will be entitled to request one free copy of your credit reports from each of the credit agencies, even if you have already received reports that year.
You should also immediately contact creditors or other companies with accounts in your name that may have been affected by the fraud, instructing them to close the accounts immediately. The next step is to file a report of the theft with the police in the community where the crime was committed. Finally, file a complaint with the Federal Trade Commission (FTC), which maintains a database used by police and other law enforcement authorities for identity theft investigations. Be sure to keep written records of your efforts to alert creditors and the appropriate authorities to the theft. 

Family Foundations—Benefits Stretch Beyond Charitable Giving

Many affluent individuals view the family foundation as a means for meeting specific philanthropic goals. For some, it also creates visible evidence of a donor’s charitable intent. In addition, a family foundation can assist a donor in maintaining the integrity of his or her charitable intent for many years into the future, as well as help to inspire the character, sense of community, and love of knowledge of future generations.

Establishing a Philanthropic Legacy
A family foundation allows a wealthy donor to establish a set of ground rules for future charitable work, as well as provide heirs with incentives to carry forward the donor’s (and family’s) philanthropic legacy. However, this can only be achieved by carefully evaluating existing and potential family relationships and implementing proper planning.
Generation after generation, the grant-making agenda of new board members may begin to differ from that of the original donor. In addition, it is equally possible that the philanthropic vigor displayed by the original donor may be lost in future years. Hence, some donors may feel the need to have at least one “outsider” seated on the foundation’s board to provide stability and objectivity. However, the involvement of outside professionals can slowly move a family foundation toward the direction of a public foundation—something that future heirs may indeed favor, but the original donor (and the current board) may wish to avoid.
To alleviate these potential future problems, a donor can tie an incentive-based estate plan together with the family foundation. In doing so, the donor can create a family environment and attitude that is more consistent with the donor’s goal of preserving the integrity of the foundation. Under such an arrangement, heirs are rewarded for overall participation and employment by the foundation, as well as the execution of the foundation’s original mission.

Family Involvement—More Than an Incentive
Wealth certainly provides many heirs with an additional means to help meet specific goals. However, one of the greatest challenges that some heirs will face in their lifetimes is learning how to grapple with inherited wealth. For some parents (or grandparents), teaching a child (or grandchild) to be willing to learn complex financial subjects and management skills is an equally imposing challenge. In addition to providing a means for gaining insight into the importance of charitable giving, a family foundation creates an ideal platform for heirs to hone their finance and management skills—in essence, their life skills.
Heirs can be involved in a family foundation as volunteers, employees, and/or board members. As a volunteer or employee, an heir can gain valuable business management skills, as well as witness firsthand the positive impact charitable giving can have on the community. Heirs who are selected to become board members will further delve into the decision-making and grant-making process, which can foster greater accountability and expand knowledge of financial matters.
If the donor already has several grown children who are regularly involved in the family foundation, he or she may consider making all of them board members. If this is logistically impractical, it may be wise to establish a rotating seat on the board. For instance, every two years, a different child would occupy a seat on the board.
Additionally, one might suspect that the age of a younger heir might limit his or her overall participation in the foundation. On the contrary, many donors welcome the opportunity to start heirs early when it comes to financial and philanthropic education. How young is too young? That depends on each individual set of circumstances. Generally, twelve- and thirteen-year-olds are certainly not too young to volunteer some of their time and begin to gain an understanding of “charity.”
In fact, it is fairly common for many donors to have their entire families participate, to some degree, in their foundation’s activities. To enhance the learning experience, some donors have initiated creative methods for promoting life skills development, in addition to more traditional foundation activities. For instance, a donor could set up a contest in which each heir is responsible for managing $10,000 of the foundation’s assets. After a specified period of time, all portfolios are analyzed and discussed. Or, when younger, school-aged heirs are involved, a donor could establish an essay contest asking each heir to write about a charity he or she would wish to benefit. Again, all essays, when complete, are reviewed and discussed. In both cases, modest prizes are given to heirs whose portfolios yielded positive returns or whose essays were well written and topical. The benefits of such programs can be immeasurable for the participant, the donor, and ultimately, the foundation.

A Lifetime of Dividends
Without question, philanthropy is extremely important to many affluent individuals. At the same time, many may wonder how they can instill in their children, and/or other heirs, a similar sense of passion for philanthropic pursuits. Similarly, many affluent individuals may be concerned about how they can school future generations in handling wealth. When properly established, the family foundation can provide the means to accomplish both goals. 

From the Desk of:

John D. Pivirotto
Calif. Insurance License #0699308

Financial Concepts

Burlingame, CA 
(650) 348-1880
(650)348-0255 Fax


Helping Build & Protect Your Future

Investment Advisor Representative
Securities and Advisory Services
offered through
Lincoln Financial Securities Corporation
Member SIPC

Current tax law is subject to interpretation and legislative change. Tax results and the appropriateness of any product for any specific taxpayer may vary depending on the particular set of facts and circumstances. The information contained in this newsletter is not intended as tax, legal, or financial advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek such advice from your professional advisors. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. Written and published by Liberty Publishing, Inc. Copyright © 2009 Liberty Publishing, Inc.
Copyright 2009 Liberty Publish- ing, Inc., Beverly, MA. The opinions and recommendations expressed herein are solely those of Liberty Publishing, Inc., and in no way represent advice, opin ions, or recommendations of the Financial Planning Association, its affiliates or members. CFPTM and CERTIFIED FINANCIAL PLANNERTMare federally registered service marks of the Cer- tified Financial PlannerBoard of Standards (CFP Board). This summary does not constitute legal and/or tax advice and should only be relied upon when coordinated with a qualified legal and/or tax advisor. Febuary, 2009.
Planning Strategies
*Disclosure – Securities and Advisory services offered through representatives of Lincoln Financial Securities Corporation, member FINRA & SIPC. This is not an offer to sell securities, which may be done only after proper delivery of a prospectus and client suitability is reviewed and determined. Information relating to securities is intended for use by individuals residing in California, Oregon and Colorado only. Advisory Services are offered to residents of the state of California only. Lincoln Financial Securities Corporation is not affiliated with Financial Concepts. Financial Concepts offer insurance & financial services to residents in California and Oregon. Variable & Group insurance products offered through LFS Marketing and Insurance Sales Corporation; fixed insurance products offered through Financial Concepts Insurance & Financial Services.
John Pivirotto’s California Insurance License #: 0699308
Financial Concepts’ California Insurance License #: 0786047