August 2014 Newsletter

Home Staging-Get Your Home Ready to Sell

In today’s competitive housing market, your home’s appearance plays an important role in determining how quickly it will sell. Before you put your home on the market, many real estate professionals recommend doing at least some form of home staging. Fortunately, there are a number of things you can do to stage your home for selling that take only a little time and effort, and more importantly, won’t break the bank.

Be sure to make a good first impression When it comes to selling your home, first impressions are important. A yard that is overgrown and poorly maintained can turn off a potential buyer before he or she even walks through your front door. But keep in mind that you don’t have to have a green thumb or hire an expensive landscape designer to make a difference. You can make the outside of your home more welcoming by:

  •      Cutting grassy areas that are overgrown Trimming trees and shrubbery–especially those that are next to the house
  •      Clearing walkways and paths so visitors can easily enter your home
  •      Giving your front door a fresh coat of paint
  •      Making sure outdoor lighting is adequate/updated
  •      Create a welcoming environment

When potential buyers first walk through your front door, you’ll want them to feel comfortable and at ease. You can create a welcoming environment with a few minor touches such as fresh flowers in the entryway or the smell of freshly baked cookies.

Give your home a thorough cleaning Never underestimate the impact a clean home can have on a potential buyer. Dust on shelves, mildew in the bathroom, and dirty carpets can be huge deterrents when selling a home.  Before you put your home on the market, you’ll want to give it a thorough cleaning from top to bottom. If it’s a big enough job, you may even want to enlist the services of a professional cleaning company to assist you with the cleanup.  Remove clutter.  Removing clutter from your home will make it seem more functional, spacious, and organized, all important features for a potential homebuyer. You can get started with:

  •  Clean out closets and install closet organizers
  •  Add shelves and storage bins to hide clutter
  •  Remove any personal effects, like photos and mementos•
  •  Clean out attic, basement, and garage spaces
  •  Rent a dumpster or hire a disposal company to get rid of larger, unwanted items or consider donating unwanted items that are in good condition to a charitable organization

Invest in a fresh coat of paint Dated wall treatments, such as wallpaper borders and faux finishes, can deter a potential buyer. A fresh coat of paint is a cost effective way to give your home an updated appearance. When picking out paint colors, stick to neutral color schemes, which tend to have a broader appeal. Remember that darker colors often make rooms seem smaller and more intimate, while lighter colors can make a room appear larger and more spacious.

Hold off on major improvements/upgrades Most home staging projects should only involve minor improvements to your home that won’t take up much of your time or cost you a lot of money. As a result, you should hold off onmajor improvements or upgrades, such as renovating an entire kitchen or putting on a new addition.

Get professional help if needed. If you feel that you need assistance staging your home before you put it on the market, there are staging professionals and companies that assist homeowners during the home-staging process. The cost of professional home staging varies, depending on the types of services provided. Basic staging services usually offer simple advice and tips for organizing and cleaning your home. Other, more involved staging services provide full home redesigns along with specially staged furnishings and accessories.


Retirement Myths and Realities

We all have some preconceived notions about what retirement will be like. But how do those notions compare with the reality of retirement? Here are four common retirement myths to consider.
1. My retirement won’t last that long.  The good news is that we’re living longer lives. The bad news is that this generally translates into a longer period of time that you’ll need your retirement income to last. Life expectancy for individuals who reach age 65 has been steadily increasing. According to the National Center for
Health Statistics, life expectancy for older individuals improved mainly in the latter half of the 20th century, due largely to advances in medicine, better access to health care, and healthier lifestyles. Someone reaching age 65 in 1950 could expect to live approximately 14 years longer (until about age 79), while the average
65-year-old American today can expect to live about another 19 years (to age 84) (Source: National Vital Statistics Report, Volume 61, Number 4, May 2013). So when considering how much retirement income you’ll need, it’s not unreasonable to plan for a retirement that will last for 25 years or more.
2. I’ll spend less money after I retire.  Consider this–Do you spend more money on days you’re working or on days you’re not working? One of the biggest retirement planning mistakes you can make is to underestimate the amount you’ll spend in retirement. One often hears that you’ll need 70% to 80% of your pre-retirement income after you retire. However, depending on your lifestyle and individual circumstances, it’s not inconceivable that you may need to replace
100% or more of your pre-retirement income.  In order to estimate how much you’ll need to accumulate, you need to estimate the expenses you’re likely to incur in retirement. Do you intend to travel? Will your mortgage be paid off? Might you have significant health-care expenses not covered by insurance or Medicare? Try thinking about your current expenses and how they might change between now and the time you retire.
3. Medicare will pay all my medical bills. You may presume that when you reach age 65, Medicare will cover most health-care costs.  But Medicare doesn’t cover everything.  Examples of services generally not covered by traditional Medicare include most chiropractic, dental, and vision care. And don’t forget the cost of long-term care–Medicare doesn’t pay for custodial (non-skilled) long-term care services, and Medicaid pays only if you and your spouse meet certain income and asset criteria. Without proper planning, health-care costs can sap retirement income in a hurry, leaving you financially strapped.  Plus there’s the cost of the Medicare coverage itself. While Medicare Part A (hospital insurance) is free for most Americans, you’ll pay at least $104.90 each month in 2014 if you choose Medicare Part B (medical insurance), plus an average of $31 per month if you also want Medicare Part D (prescription coverage). In addition, there are co-pays and deductibles to consider–unless you pay an additional premium for a Medigap policy that covers all or some of those out-of-pocket expenses.   (As an alternative to traditional Medicare, you can enroll in a Medicare Advantage (Part C) managed care plan; costs and coverages vary.)
4. I’ll use my newfound leisure hours to (fill in the blank).  According to the Bureau of Labor Statistics 2012 American Time Use Survey, retirees age 65 and older spent an average of 8 hours per day in leisure activities. (Leisure activities include sports, reading, watching television, socializing, relaxing and thinking, playing cards, using the computer, and attending arts, entertainment, and cultural events.) This compares to an average of 5.4 hours per day for those age 65 and older who were still working.  So how did retirees use their additional 2.6 hours of leisure time? Well, they spent most of it (1.6 hours) watching television. In fact, according to the survey, retirees actually spent 4.5 of their total 8 leisure hours per day watching TV.  And despite the fact that many workers cite a desire to travel when they retire, retirees actually spent only 18 more minutes, on average, per day than their working counterparts engaged in “other leisure activities,” which includes travel.


How the Windsor Decision Affects Retirement Plans

Spouses of employer-sponsored retirement plan participants have certain rights when it comes to the plans. Because of this, the legal definition of “spouse” is very important to both plan sponsors and plan participants in understanding how a retirement plan works.  On June 26, 2013, in United States v. Windsor, the U.S. Supreme Court struck down as unconstitutional Section 3 of the 1996 Defense of Marriage Act (DOMA). Section 3 of DOMA stated that the definition of marriage was limited to the union of one man and one woman. The Windsor decision means that federal law recognizes same-sex couples married under state law; same-sex couples are now able to receive federal benefits and protections that were previously afforded only to opposite-sex married couples. The decision does not, however, require individual states to recognize same-sex marriages.

Pursuant to the Windsor ruling, the Internal Revenue Service (IRS) and the Department of Labor (DOL) released guidance stating that same-sex couples married in a state where same-sex marriage is legal (“state of celebration”) are recognized under federal law for tax and employee benefit purposes. What this means for qualified retirement plans is that spousal plan provisions are extended to same-sex spouses, even in states where same-sex marriages are not recognized, provided the marriage took place in a state that recognized same-sex marriage. In April of this year, the IRS issued further guidance to help retirement plan sponsors determine when the law officially applies (i.e., answering questions surrounding retroactivity) and whether plan documents need to be amended.

For employers:
Employers will want to take note of a few dates:
June 26, 2013: Plans must recognize same-sex spouses of participants as of this date to reflect the Windsor decision.
September 16, 2013: This is the first applicable date when the state of celebration rule must apply. The period between June 26 and September 16, 2013, is considered transitional–employers that recognized same-sex married couples only in cases where the participant was domiciled in a state that recognized same-sex marriages will not be treated as failing to meet the requirements.
The later of December 31, 2014, or the end of the plan’s normal amendment period: Any plan documents that currently have language that is not consistent with the Windsor decision (e.g., any documents that reference the definition of marriage in Section 3 of DOMA, specify recognition based on state of domicile rather than celebration, or are inconsistent with Windsor in any way) must be amended to comply with current law.

Note that not all plans will need amendments–those whose language is neutral enough to be consistent with Windsor will be in compliance, provided they operate in accordance with the new law as of June 26, 2013. In addition, employers may choose to adopt amendments recognizing same-sex marriages prior to June 26, 2013; however, the IRS cautions this may result in complications and “may trigger requirements that are difficult to implement retroactively … and may create unintended consequences.”*

Employers that previously extended benefits to domestic partnerships or civil unions may want to carefully consider the ramifications of any decisions made or amendments drafted that may cut back those benefits. For example, employers may choose to grandfather in couples who were covered prior to June 26, 2013, rather than remove their partner benefit provisions outright.

For plan participants:
For you, a key issue revolves around beneficiary designations. Many married participants–in both same-sex and opposite-sex relationships–are not aware that their spouse is automatically their plan beneficiary. For this reason, participants might want to review their beneficiary designations to ensure that they conform with both their wishes and the law.

If the spouse is not the plan participant’s desired beneficiary, then the spouse must waive his or her right in writing. For example, if you would prefer that your child be the primary beneficiary, then your spouse must sign a consent form waiving rights to be your primary beneficiary. Divorce is another situation that should be considered, as same-sex spouses can now be covered under a qualified domestic relations order, which is a legal order documenting how retirement assets will be divided.  Other provisions that may be affected by the law include loans, hardship withdrawals, and annuity payments in retirement (depending on the type of plan and its terms). Participants considering taking money out of their plans for any reason may want to review the rules with regard to spousal consent or applicability to ensure they understand the requirements.


Have the rules for 401(k) in-plan Roth conversions changed?

Yes. Thanks to the American Taxpayer Relief Act of 2012 (ATRA), the rules for making 401(k) in-plan Roth conversions have gotten substantially easier. (These rules also apply to 403(b) and 457(b) plans.)  A 401(k) in-plan Roth conversion (also called an “in-plan Roth rollover”) allows you to transfer the non-Roth portion of your 401(k) account into a designated Roth account within the same plan. The amount you convert is subject to federal income tax in the year of the conversion (except for any nontaxable basis you have in the amount transferred), but qualified distributions from the Roth account are entirely income tax free. The 10% early distribution penalty doesn’t apply to amounts you convert (but that penalty tax may be reclaimed by the IRS if you take a non-qualified distribution from your Roth account within five years of the conversion).

While in-plan conversions have been around since 2010, they haven’t been widely used, because they were available only if you were otherwise entitled to a distribution from your plan–for example, upon terminating employment, turning 59½, becoming disabled, or in other limited circumstances. But in that case, you already had the option of rolling your funds over (converting) into a Roth IRA.  ATRA eliminated the requirement that you be eligible for a distribution from the plan in order to make an in-plan conversion. Now, if your plan permits, you can convert any vested part of your 401(k) plan account into a designated Roth account regardless of whether you’re otherwise eligible for a plan distribution. The IRS has also just recently issued regulations that provide additional
clarity on how in-plan conversions work.

Caution: Whether a Roth conversion makes sense financially depends on a number of factors, including your current and anticipated future tax rates, the availability of funds with which to pay the current tax bill, and when you plan to begin receiving distributions from the plan. Also, you should consider that the additional income from a conversion may impact tax credits, deductions, and phaseouts; marginal tax rates; alternative minimum tax liability; and eligibility
for college financial aid.


Is there a new one-rollover-per-year rule for IRAs?

Yes–starting in 2015. The Internal Revenue Code says that if you receive a distribution from an IRA, you can’t make a tax-free (60-day) rollover into another IRA if you’ve already completed a tax-free rollover within the previous 12 months. The long-standing position of the IRS, reflected in Publication 590 and proposed regulations, was that this rule applied separately to each IRA you own.

Using an IRS example, assume you have two traditional IRAs, IRA-1 and IRA-2. You take a distribution from IRA-1 and within 60 days roll it over into your new traditional IRA-3. Under the old rule, you could not make another tax-free 60-day rollover from IRA-1 (or IRA-3) within one year from the date of your distribution. But you could still make a tax-free rollover from IRA-2 to any other traditional IRA.  Recently a taxpayer, Mr. Bobrow, did just what the example above seemed to allow, taking a distribution from IRA-1 and repaying it back to IRA-1 within 60 days, and then taking a distribution from IRA-2 and repaying it back to IRA-2 within 60 days. Unfortunately for the taxpayer, the IRS decided this was no longer the correct interpretation, and told Mr. Bobrow that his transactions violated the one-rollover-per-year rule. The case made its way to the Tax Court, which agreed with the IRS and held that regardless of how many IRAs he or she maintains, a taxpayer may make only one nontaxable 60-day rollover within each 12-month period.

Not surprisingly, the IRS has announced that it will follow the Bobrow case beginning in 2015 (more technically, the new rule will not apply to any rollover that involves a distribution occurring before January 1, 2015). For the rest of 2014 the “old” one-rollover-per-year rule in IRS Publication 590 (see above) will apply to any IRA distributions you receive. But keep in mind that you can make unlimited direct transfers (as opposed to 60-day rollovers) between IRAs–these aren’t subject to the one-rollover-per-year rule. So if you don’t have a need to actually use the cash for some period of time, it’s generally safer to use the direct
transfer approach and avoid this potential problem altogether.  (Note: The one-rollover-per-year rule also applies–separately–to your Roth IRAs.)


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