Financial Planning Tips
BENEFICIARY DESIGNATIONS
Many people believe that their wills control who is designated to inherit their assets upon death. However, that is not true for
many assets – for example, beneficiaries of investments in an IRA, 401K Plan, Pension Plan or other retirement accounts are
determined by specific beneficiary designation forms on file with a custodian or employer. Other assets where inheritance is not
controlled by a will include real estate owned as joint tenants or tenants by the entirety, life insurance, and annuities.
It is important to know whom you have designated on beneficiary forms for retirement accounts and to keep those designations
up‐to‐date if changes have occurred such as divorce, marriage, births etc. Please do not hesitate to contact us if you are not sure
whom you have designated on retirement account beneficiary forms or if you think you may need to make changes.
UMBRELLA LIABILITY INSURANCE
Insurance is a significant expense for most families. Premiums for health, life, disability, homeowners, automobile and other
insurance seem to go up each year; however, there is one type of insurance that is often overlooked and is a relative bargain
when compared to the level of risk that it covers. While homeowners’ and automobile insurance provides a limited level of
protection against liability in the event of an accident, that level of insurance does not provide adequate protection in most
instances. Umbrella liability insurance is easily obtained from your insurance agent and is another level of liability protection
that sits on top of the liability protection provided in a homeowners’, automobile, or boat policy. In most instances, a 3‐ or 5‐
million dollar umbrella liability policy should be available for around $500 ‐ $1,000. Remember – liability insurance will not only
pay for an ultimate award against you but also pays for legal defense costs that may be incurred in defending against claims.
DOES YOUR EMPLOYER OFFER A 401K ROTH PLAN?
Beginning in 2006, some companies began offering a Roth 401K Plan in tandem with an existing 401K Plan. (Unlike Roth IRAs,
there are no income limits that preclude clients from participating in a Roth 401K.) However, there are advantages and
disadvantages to utilizing a Roth 401K. The key disadvantage is that the contributions are after tax – in other words, you are not
able to reduce the amount of your taxable income by the amount of your contribution to the Plan. However, the major
advantage is that since you are making the contribution with after tax dollars, both the contribution and the earnings within the
Roth 401K Plan can be distributed on a tax‐free basis after you reach age 59.5. This is a major advantage over regular 401K Plans
and IRAs where all distributions from the Plan will be taxed at ordinary income tax rates. If you believe that tax rates may have
to go up in the future to pay for budget deficits, Medicare and the like, the Roth 401K becomes even more attractive.
GIFTING STRATEGIES
You may gift up to $13,000 to as many people as you want in one calendar year without any gift or generation skipping transfer
tax implications. For example, a husband and wife with 5 children could make a $26,000 gift to each child (for a total gift of
$130,000) in one year and remove that amount of money from their taxable estate. In addition to the $13,000 per donee annual
exclusion amount, an unlimited gift tax exclusion is available for tuition amounts paid on behalf of a donee (as long as payment is
made directly to the school) or for medical costs paid on behalf of someone (again, payment must be made directly to the health
care provider).
Rod Macdonald is a Certified Financial Planner™ and can advise you on most financial and retirement planning issues. For more
information, call us at 617.338.9393, or email us at LWI_info@long‐wharf.com.