Social Security – Navigating The Effective Date Deadlines For The New File-And-Suspend And Restricted Application Rules

Michael Kitces

NOVEMBER 4, 2015


Social Security - new filing strategies

Navigating The Effective Date Deadlines For The New File-And-Suspend And Restricted Application Rules




With last week’s “surprise” legislation that revealed Congress is killing the File-and-Suspend and Restricted Application claiming strategies for maximizing Social Security benefits, even those who weren’t previously aware of the strategies are now wondering whether it’s something to take advantage of before the new rules go into effect.


Fortunately, though, the new rules do not kick in immediately. Those who are already receiving benefits are not impacted at all. And those who are full retirement age – or will reach it in the next 6 months – will still have the opportunity to file-and-suspend before the crackdown takes effect after April 29, 2016. Furthermore, anyone who was born in 1953 or earlier (or January 1st of 1954) will still be able to do a Restricted Application for spousal (or divorced ex-spouse) benefits, even if the filing doesn’t occur until years from now.


Nonetheless, the next 6 months do mark an important transition period that merits a close look at Social Security claiming strategies, for the brief time window that all of the tools remain on the table, whether it’s an individual filing and suspending for a potential lump sum reinstatement in the future, a couple claiming spousal benefits, or a family claiming dependent or disabled child benefits while delaying individual retirement benefits until age 70. And for those “lucky” enough to be born in 1953 or earlier, only a few years remain to consider a Restricted Application, before that deadline ends, too!


(Michael’s Note: This article was updated on November 5th at 8:37PM with updated details about the exact effective dates/deadlines and relevant birth-date requirements for file-and-suspend and restricted application.)


The Near-Term Expiration Of The File and Suspend Strategy For Married Couples




The original version of File-And-Suspend allowed someone, upon reaching full retirement age, to file for Social Security retirement benefits, and then immediately suspend them. The fact that benefits had been filed for meant a spouse became eligible for spousal benefits (as spousal benefits cannot be claimed until the primary worker also files for benefits). However, the fact that benefits of the primary worker were subsequently suspended – and therefore were not actually received – meant that the original filer could still earn delayed retirement credit increases of 8%/year for waiting.


Example 1. John and Mary are both age 66, and have been married for 40 years, in a household where John was the primary breadwinner and Mary never worked outside the household. John is eligible for a retirement benefit of $2,000/month at his full retirement age, and Mary at her full retirement age will have no retirement benefit of her own, but will be eligible for a spousal benefit of $1,000/month, equal to 50% of John’s full benefit.


John wants to delay his benefits until age 70, increasing his benefit by 4 years x 8%/year of delayed retirement credits to $2,640/year (plus subsequent cost-of-living adjustments). Doing so not only boosts his own benefit, but increases the size of John’s survivor benefit that would be payable to Mary if John dies first.


However, waiting until John turns 70 means that Mary won’t receive any of her $1,000/month spousal benefits until then either, since Mary cannot get spousal benefits until John actually files for his own. And since there are no delayed retirement credits for spousal benefits, the extra 4 years of waiting just means Mary permanently loses those 4 years of $1,000/month benefits with no benefit in return!


To resolve this issue, John would File-and-Suspend upon becoming eligible at his full retirement age of 66. By doing so, Mary becomes eligible to claim her own $1,000/month spousal benefit (which she can receive in full, since she too is age 66), accumulating 4 years’ worth of spousal benefits she otherwise wouldn’t have received. (If Mary had been younger, she could have also claimed, but her spousal benefits would be reduced for starting early.) And John still gets the 8%/year delayed retirement credit increases for delaying his own benefits until age 70.


The fundamental point – with File-and-Suspend, John could allow Mary to get her spousal benefits, while still delaying his own benefits to earn the 8%/year delayed retirement credits.




Under the new rules in Section 831 of the Bipartisan Budget Act of 2015, when John suspends his benefits, he will suspend not only his own benefits, but any/all benefits payable to other individuals based on his earnings record. And since Mary’s spousal benefits are 50% of John’s benefits – and therefore are based on his earnings – then the entire File-and-Suspend strategy is effectively dead.


Now, if John were to file-and-suspend, he will suspend his benefits and Mary’s benefits, so no one gets any benefits. Which means if John wants to delay his benefits to earn delayed retirement credits, Mary will have to wait on claiming her spousal benefits, too.




Under the final version of the Bipartisan Budget Act of 2015, the new limitations on File-And-Suspend will apply to anyone who requests a suspension of benefits more than 180 days after the effective date of the legislation. With the law being passed November 2nd of 2015, that means new suspensions occurring on April 30th of 2016 will be subject to the new more restrictive rules (so file-and-suspend must occur on/by April 29th of 2016 to be grandfathered).


Accordingly, if John has already filed and suspended to give Mary access to benefits, the new legislation has no effect. There will be no adverse impact applied retroactively, as while there was an issue with retroactive enforcement in the original legislation, this was resolved with a subsequent amendment before the law was passed.


If John hadn’t yet reached full retirement age of 66, but would reach it between now and April 29th (i.e., he is already at least 65 ½, with a birthday of April 30 1950 or earlier, such that he will attain the age of 66 on April 29th of 1950 or earlier), he would still be able to file-and-suspend in that time window to give Mary access to spousal benefits while delaying his own.


However, if John is younger than 65 ½ now – such that he isn’t age 66 and won’t be by April 29 – he will not be able to use the file-and-suspend strategy at all, as the request to suspend benefits starting next April 30th will suspend Mary’s benefits as well, defeating the entire point of the file-and-suspend strategy.


Notably, if John had planned to just outright file for his benefits and get them, he can still do so, regardless of these new rules. The changes only impact the strategy of having John file to give Mary access to spousal benefits and then suspend his own. If he wants to file-and-get benefits (rather than file-and-suspend them), he can do so under the existing standard rules for Social Security.




While the primary function of the file-and-suspend strategy was to allow a spouse to apply for spousal benefits while the primary worker delayed his/her own retirement benefits, a secondary version of the strategy was relevant for individuals.


Specifically, the opportunity was that at full retirement age, an individual who planned to delay benefits until full retirement age anyway could choose to file-and-suspend. While doing so would earn the same delayed retirement credits that were available by just delaying outright, the fact that the individual filed-and-suspended meant that if he/she had a change of mind later, it was possible to retroactively claim all benefits going back to the date of the original suspension.


Example 2. Jeremy is an individual who plans to delay benefits until age 70. However, just in case, he chooses to file-and-suspend upon reaching his full retirement age of 66.


If Jeremy has no change in circumstances, he will receive benefits at age 70, with the same 8%/year x 4 years = 32% increase for delayed retirement credits he would have received otherwise.


However, if Jeremy finds out he has a terminal illness at age 69, such that delaying benefits will no longer be beneficial, he can request a retroactive payment of his benefits going back to age 66. This allows him to be paid retroactively in a single lump sum for the 3 years of benefits he previously suspended.


Notably, the normal rules for “retroactive benefits” don’t allow this; it’s only possible to file a retroactive claim going back 6 months. However, under the Social Security Administration’s operations manual guidance (POMS GN 02409.130) regarding a voluntary suspension of benefits, those who had suspended payments had the option to reinstate them for the current month, a future month, or any past month during the suspension period.


Thus, as illustrated above, Jeremy can effectively get a lump sum payment of prior benefits, not by claiming “retroactive benefits” but instead by requesting a reinstatement of benefits back to the original file-and-suspend date. (Of course, doing so also meant the retiree would be treated as having claimed at the earlier date in the first place, forfeiting any delayed retirement credits, so this was generally only appealing if there was a change of health that meant the retiree didn’t expect to live long enough to reach the Social Security breakeven period for delaying benefits in the first place.)


What changed under the new rules, however, was that the Bipartisan Budget Act of 2015created a new Social Security Act section 202(z), which defines the rules for how voluntary suspension will work in the future (including “unsuspension” or resumption of benefits). And the new rules stipulate under 202(z)(1)(A)(ii) that suspended benefits can only be resumed in the next subsequent month after the request is made, or at age 70. In other words, the new rules don’t have the option to reinstate going back to a prior month, which effectively means the optional-lump-sum-reinstatement strategy is dead.


Of course, since the new rules for suspension of benefits only apply to requests for suspension after the effective date, anyone who has already requested a suspension of benefits, or who does so in the next 6 months (if you reach full retirement age of 66 within the next 6 months!), remains eligible for the strategy. Even if the request to resume occurs years from now, as long as the original suspension occurred prior to the effective date of the legislation (by April 29 of 2016), the opportunity remains. Any suspension that begins after the effective date, though, will not be eligible for a subsequent retroactive reinstatement.


On the other hand, it’s also noting that because the reinstatement of benefits backdated to a prior month only exists because the Social Security Administration currently allows it in the Operations Manual, there also remains a possibility that the SSA will change its own manual shut down the strategy, even for those who have already filed and suspended, in a similar manner to the crackdown that occurred on the withdraw-and-reapply Social Security strategy back in 2010.


Of course, for those who were going to delay either way, there is little harm to file-and-suspend within the next 6 months just in case it turns out to be relevant in the future (though doing so will trigger enrollment in Medicare, and the end of eligibility to participate in a Health Savings Account). But be cognizant the availability of this reinstatement rule in the future is not unequivocally guaranteed, even for those who have filed-and-suspended before the effective date of the new legislation.


The End Of “Claim Now, Claim More Later” Restricted Application Strategies For Dual-Income Married Couples




While the role of file-and-suspend was to allow someone else to get spousal benefits while the primary worker delayed his/her own benefit, the purpose of restricted application was for someone to get their own spousal benefit while delaying their own individual retirement benefit.


Example 3. Continuing the earlier Example 1 of file-and-suspend, imagine instead that Mary did spend some years working outside of the home, generating her own retirement benefit of $1,100/month. And because there’s limited benefit for both spouses to delay, Mary decides to start her own benefits now at $1,100/month, while John continues to delay.


The planning opportunity here is that John can file a Restricted Application to receive just his spousal benefit, and delay his own individual retirement benefit. This would allow John to receive his $550/month (which is 50% of Mary’s benefit) in spousal benefits for the next 4 years, and then switch to his own individual retirement benefit later. And since he doesn’t get any of his own individual retirement benefits along the way, they still earn an 8%/year delayed retirement benefit increase for 4 years, so when John switches back to his own benefit at age 70, it will have been boosted by 32% to $2,640 (plus subsequent cost-of-living adjustments).


Thus, while file-and-suspend was about allowing Mary to get a spousal benefit while John delaying his retirement benefit, restricted application is about John getting his own spousal benefit while delaying his own retirement benefit (and presuming that Mary is already getting her benefits as well).


A related Restricted Application strategy would even combine the two approaches.


Example 4. Continuing the prior example, instead of having Mary file for benefits and John file a restricted application for $550/month, John could file-and-suspend and let Mary get 50% of his benefit. Of course, there’s not much reason for Mary to claim a $1,000/month spousal benefit when she’s already eligible for a $1,100/month retirement benefit of her own, since upon filing for both benefits Mary will only receive whichever is higher, not both.


However, if John files-and-suspends, Mary can file a restricted application herself, receiving the $1,000/month spousal benefit from John while delaying her own. This way, Mary can delay her own benefit to earn the maximum 32% increase for delaying – pushing her $1,100/month benefit up to $1,452/month – and also get $1,000/month along the way until she switches back to her own benefit. And because John filed-and-suspended, he will get 32% of cumulative delayed retirement credits on his benefit, too.


Ultimately, which of these strategies is superior – having John file a restricted application, or having John file-and-suspend so Mary can file a restricted application – will depend on how long each of them lives. Nonetheless, the fundamental point of Restricted Application was/is to allow one spouse to claim spousal benefits while simultaneously delaying his/her own individual retirement benefits.


On the other hand, it’s also worth noting that because a Restricted Application is all about claiming a spousal benefit based on the other person’s retirement benefit, while also delaying your own retirement benefit, it’s only relevant for dual-income couples who each had enough in earnings to be eligible for a Social Security retirement benefit in the first place. For a single-income household, a Restricted Application is not relevant, only File-and-Suspend.




Under the new Section 831 rules of the Bipartisan Budget Act of 2015, when either John or Mary files for benefits, they are deemed to file for both individual and spousal benefits. And under the standard rules for Social Security benefits, anytime someone applies for multiple benefits they simply receive whichever provides the biggest benefit check (i.e., the larger benefit simply overwrites the smaller one).


In other words, there will no longer be such thing as applying for just one benefit and switching to the other later. Instead, for better or worse, either all benefits start earlier, or all are delayed later.




In the case of Restricted Application, the effective date for the new rules is a bit different.


For those who turn age 62 or older this year – in essence, those born in 1953 or earlier, or someone born on January 1st of 1954 who technically “attains” age 62 as of December 31 of 2015 under POMS GN 00302.400 – Restricted Application is grandfathered under the current rules. Which means if you’re already receiving a spousal benefit under restricted application, you can continue to do so. And if you’re not receiving a spousal benefit yet, but planned to file a restricted application for it in the future, you can still do so – even if your filing for restricted benefits wouldn’t have happened until as late as 2019 when today’s 62-year-olds finally reach full retirement age.


On the other hand, for those who are under age 62 this year – i.e., born January 2nd of 1954 or later – there will simply no longer be any opportunity for doing a Restricted Application, now or in the future. Instead, a spouse eligible for spousal benefits will be required to file for all benefits, or wait on all benefits.


Notably, though, the entire question of filing a restricted application for spousal benefits is a moot point until the other member of the couple has already filed for benefits. In the next 6 months, that other member of the couple could file-and-suspend for benefits to activate the spousal benefits; beyond that point, while a restricted application may be possible, it can only occur if the other member of the couple files-and-gets benefits.


Impact of the New Rules On Divorced/Ex-Spouse Benefits To “Claim Now, Claim More Later”


In the case of a divorced spouse, file-and-suspend was not relevant, since the divorced spouse is eligible for a full spousal benefit at full retirement as long as his/her ex-spouse is at least age 62 (regardless of whether that person has filed for benefits).


However, filing a restricted application to obtain the ex-spouse spousal benefits while delaying individual benefits was an effective strategy to maximize retirement benefits while obtaining some (ex-spouse) benefits along the way.


This version of the “claim now, claim more later” strategy remains available under the new rules, but only for those born in 1953 or earlier (or on January 1st of 1954) who are grandfathered under the budget legislation. Thus, for those who are already claiming ex-spouse spousal benefits, or were born on January 1st of 1954 or an earlier year and planned to claim ex-spouse spousal benefits in the future, the option to claim spousal at full retirement age and delay retirement benefits until later remains available.


For those born on January 2 of 1954, or later, there will no longer be any option to delay individual retirement benefits while claiming an ex-spouse’s spousal benefit. Instead, a divorcee must either claim all benefits (both spousal and retirement) and receive whichever is higher, or wait to increase the individual retirement benefit and claim none until then. The claim-one-and-switch strategy will no longer be available.




One significant caveat and complicating factor of the new rules is that while file-and-suspend was not normally relevant in divorced spouse situations, the new crackdown on suspended benefits may have unwittingly made it relevant.


The issue is that under the new Social Security Act section 202(z)(3)(B), when someone suspends a benefit “no monthly benefit shall be payable to any other individual on the basis of the [worker’s] wages and self-employment income.” This is the provision that eliminated the traditional form of file-and-suspend, by stipulating that when one person in a couple suspends benefits, the spousal benefit based on his/her record will also be suspended.


However, the reality is that an ex-spouse’s spousal benefit is also a benefit paid on the basis of the primary worker spouse’s earnings record. Which means while the reality is that while a divorced spouse didn’t need the other spouse to file for benefits to be eligible, a former spouse who suspends could potentially cause the divorced ex-spouse to lose access to benefits as well.


Example 5. Charlie and Betsy are divorced, after having been married for 10 years, and are currently unmarried. As long as Charlie is at least age 62, Betsy is able to file for an ex-spouse’s spousal benefit at her appropriate age, which wasn’t changed under any of the new rules of the budget legislation.


However, under the new rules, if Charlie plans to delay benefits until age 70 anyway, he could go into the Social Security Administration at age 66 (after the effective date of the new legislation), and file-and-suspend just to be vindictive and prevent Betsy from getting her ex-spouse’s benefits. After all, the new rules stipulate – as quoted above – that once effective, when Charlie suspends, “no monthly benefits shall be payable to any other individual [such as an ex-spouse] on the basis of [Charlie’s] wages and self-employment income.” In other words, while Charlie doesn’t have to file to give Mary benefits, Charlie’s suspension may potentially suspend his ex-wife’s benefits.


This was almost certainly not an intended outcome of the legislation, and may be within the Social Security Administration’s control to be fixed. If not, though, it may require subsequent legislation from Congress to further amend the Social Security Act to prevent this undesirable outcome. Either way, it will not matter until the new rules take effect after April 29 of 2016, so there is at least a 6-month period for the issue to be resolved.


The (Non-)Impact of the New Rules On Survivor Benefits (Including Divorcee Survivors)


When one member of a married couple passes away, the survivor is eligible for a survivor’s benefit (also known as a widow or widower’s benefit), equal to 100% of the decease spouse’s benefit. The rule also applies to a divorcee whose former spouse has passed away, as long as the couple was married for at least 10 years, and the divorcee remained unmarried until age 60.


As with any/all Social Security benefits, in the event that a surviving spouse claims multiple benefits – such as a widow’s benefit and his/her own individual retirement benefits – only the higher of the two is paid, not the cumulative total of both.


However, surviving spouses have a choice about when to claim each – the widow’s benefit and his/her own individual retirement benefit – and the new budget legislation does not change these rules.


As a result, a surviving spouse still has the flexibility to choose whether to begin widow’s benefits as early as age 60 or as late as full retirement age (at age 66), and also can choose whether to start his/her own retirement benefits as early as age 62 or as late as age 70. In both cases, starting earlier than full retirement age results in a reduced benefit, and with retirement benefits delaying past full retirement age still earns delayed retirement credits. But either way, the surviving spouse can choose independently when to start one and then the other.


Start-Stop-Start And File-And-Suspend For Parents With Dependent Or Disabled Children


When someone claims individual Social Security retirement benefits, an additional payment of 50% of his/her Primary Insurance Amount is also payable for each dependent child in the household (including biological and legally adopted children, as long as the child is unmarried and under the age of 18). The rules also apply to disabled children with no upper age limit, as long as the disability started before the age of 22. Furthermore, an “early” spouse’s benefit is also available to a spouse under age 62, if he/she is a parent caring for a disabled child (of any age) or a young child under the age of 16. These payments collectively are subject to a maximum family benefit, which varies between 150% and 180% of the primary worker’s full retirement benefit.


Because these dependent and disabled child benefits apply only once an individual has actually filed for benefits, the claiming of such benefits was eligible for the file-and-suspend rules. Thus, someone at full retirement age could file-and-suspend to activate dependent and disabled child benefits (in addition to spousal benefits), while delaying his/her own benefits to age 70 to earn delayed retirement credits.


Given the crackdown on file-and-suspend, though, only parents who are at least 65 ½ by November 1st (such that they reach full retirement age of 66 by the end of next April) will be able to pursue this file-and-suspend strategy at their full retirement age (but must file after full retirement age and before the new rules take effect!).


For younger parents who won’t be full retirement age until after the effective date, the only option will be to either start all benefits – including both retirement, spousal, and dependent/disabled child – or delay all benefits.


On the other hand, since the rules for voluntary suspension of benefits at full retirement age remains in effect, the option remains to engage in the “Start, Stop, Start” approach, where a parent starts Social Security benefits early to claim the full family benefits (including dependent/disabled child benefits), and then suspends benefits at full retirement age. Doing so will fully suspend all family benefits beyond the effective date of the legislation, but if the children are old enough to be over age 18 by then, it may still be appealing to claim full family benefits for a period of time (starting at age 62), then stop benefits to earn delayed retirement credits at 66, and then resume just the increased retirement benefit (and also the spousal benefit if available) at age 70.


A 6-Month Transition Period Until The File-And-Suspend Effective Date Deadline


Ultimately, the fact that the Bipartisan Budget Act of 2015 left a 6-month “transition period” for file-and-suspend means any/all couples who have a member that either already reached full retirement age, or will in the next 6 months, needs to carefully evaluate whether a file-and-suspend strategy makes sense or not. Because once the time window has passed, any subsequent voluntary suspension will be subject to the far-less-favorable new rules.


For those who are at least 65 ½ but were born in 1953 or earlier (or on January 1st of 1954!), the window for filing a restricted application for spousal benefits (including a divorced ex-spousal benefit) remains available for a few more years, though the ability to coordinate that strategy with file-and-suspend will still be over in 6 months.


And for everyone else in the long-term future, coordinating the benefits planning of a couple will remain relevant… but unfortunately, with far fewer tools in the strategy toolbox to maximize those benefits!
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Year-End Tax Tips for Businesses 2015-2016


BY MICHAEL COHN (Accounting Today)

The National Society of Accountants is offering some year-end tax tips for businesses, courtesy of Wolters Kluwer Tax & Accounting US.

Consider several general strategies, such as use of traditional timing techniques for income and deductions and the role of the tax extenders, as well as strategies targeted to your particular business. As in past years, planning is uncertain because of the Affordable Care Act and the expiration of many popular but temporary tax breaks.

Filing Changes
Recent legislation changed filing deadlines for some entity tax returns for 2016: Partnership tax returns will be due on March 15, not April 15 (for calendar year partnerships), and c-corporation returns will be due on April 15, not March 15 (for calendar year C Corporations). Returns for s-corporation will continue to be due on March 15.

Expensing and Bonus Depreciation
Many businesses use enhanced Code Sec. 179 expensing as a key component of year-end tax planning. Sec. 179 property is generally defined as new or used depreciable tangible property purchased for use in a trade or business. Software was also recently included, as was qualified leasehold improvement property, qualified restaurant property and qualified retail improvement property.

(Congress has not renewed the enhancements to Sec. 179 expensing for 2015, but they likely will be renewed. Year-end planning should reflect both the likely extension and the possibility of no extension.)

Similarly, bonus depreciation has been a valuable incentive for many businesses. Fifty percent bonus depreciation generally expired after 2014 (with limited exceptions for certain types of property).

Qualified property for bonus depreciation must be depreciable under the Modified Accelerated Cost Recovery System (MACRS) and have a recovery period of 20 years or less for a wide variety of assets.

Year-end placed-in-service strategies can provide an almost immediate cash discount for qualifying purchases.

Although you should factor a bonus-depreciation election into year-end strategy, you don’t have to make a final decision on the matter until you file a tax return. Also, bonus depreciation isn’t mandatory: you might want to elect out of bonus depreciation to spread depreciation deductions more evenly across future years.

Another potentially useful strategy involves maximizing benefits under Sec. 179 by expensing property that doesn’t qualify for bonus depreciation, such as used property, and property with a long MACRS depreciation period.

Section 199 Deduction
Year-end planning benefits from the release of guidance on the Code Sec. 199 domestic production activities deduction is an often under-utilized potential break. The guidance provides many examples of what business activities qualify; recent Internal Revenue Service guidance highlights manufacturing, construction, oil-related work, film production, agriculture, and many other pursuits.

Work Opportunity Tax Credit
If your business is considering expanding payrolls before 2015 ends, take a look at the Work Opportunity Tax Credit (WOTC). (Although the WOTC, under current law, expired after 2014, Congress is expected to renew the WOTC for 2015 and possibly for 2016).

Generally, the WOTC rewards employers that hire individuals from certain groups, including veterans, families receiving certain government benefits, and individuals who receive supplemental Social Security Income or long-term family assistance. The credit is generally equal to 40 percent of the qualified worker’s first-year wages up to $6,000 ($3,000 for summer youths and $12,000, $14,000, or $24,000 for certain qualified veterans). For long-term family-aid recipients, the credit is equal to 40 percent of the first $10,000 in qualified first-year wages and half of the first $10,000 of qualified second-year wages.

Repair-Capitalization Rules
Currently, a de minimis safe harbor under the so-called “repair regs” allows you to deduct certain items costing $5,000 or less that are deductible in accordance with your company’s accounting policy reflected on your applicable financial statement (AFS). IRS regulations also provide a $2,500 de minimis safe harbor threshold if you don’t have an AFS.

Routine Service Contracts
If you’re an accrual-basis taxpayer (meaning you have a right to receive income as soon as you earn it), you have a new tool for planning. The IRS has provided a safe harbor under which accrual-basis taxpayers may treat economic performance as occurring on a ratable basis for ratable service contracts—perhaps particularly useful in connection with your regular services that extend into 2016. If your business meets the safe harbor for ratable service contracts, you may be able take a full deduction in the current tax year for certain 2015 payments even though you may not perform the services until next year.

Affordable Care Act
For large businesses, the ACA imposes many new requirements, including the employer shared responsibility provision (also known as the employer mandate). Small businesses, although generally exempt from this mandate, need to review how they deliver employee health insurance.

Many small businesses have provided a health benefit to employees through a health reimbursement arrangement (HRA). Following passage of the ACA, the IRS described certain types of HRAs as employer payment plans – therefore subject to the ACA’s market reforms, including the prohibition on annual limits for essential health benefits and the requirement to provide certain preventive care without cost sharing. Failure to comply with these reforms triggers excise taxes under Code Sec. 4980D.

Pending legislation in Congress would allow small employers (that is, those with fewer than 50 full-time and full-time equivalent employees) to have stand-alone HRAs and reimburse expenses without violating the ACA’s market reforms.

Small employers also should review the Code Sec. 45R credit. If your business has no more than 25 full-time equivalent employees, you may qualify for a special tax credit to help offset your costs of employee health insurance. You must pay average annual wages of no more than $50,000 per employee (indexed for inflation) and maintain a qualifying health care insurance arrangement. (Generally, health insurance for employees must be obtained through the Small Business Health Options Program, part of the Health Insurance Marketplace.)

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How To Leave Your IRA To Those You Love

How To Leave Your IRA To Those You Love

Deborah L. Jacobs Forbes Staff

Illustration: Polly Becker

Some of the most costly estate planning mistakes I hear about from readers involve retirement accounts. Contrary to popular misconception, they are not normally covered by a will. Instead, the funds go to inheritors according to beneficiary designation forms. You fill out the form when you open an account, but can later amend it. These forms notify the bank or financial institution (the custodian) about who will inherit your accounts. These are your beneficiaries.

Whether you are young or old, married or single, if you’re among the many people who are confused about this, the start of the New Year is a good time to make sure all your beneficiary forms are in order and up to date. If you opened the account years ago, check the designation on file, to make sure it’s what you intend – for example, if you or a family member got married or divorced; or have had children or grandchildren.

A few beneficiary basics: With an IRA, you can readily name any beneficiaries you want, including friends, family members, a trust or charity. For a 401(k) or other workplace plan, you must get your spouse’s written permission to leave it to anyone else. To change a beneficiary – for example, if your spouse died – file an amended form. Make sure to name both primary and alternate (contingent) beneficiaries.

One thing you should never do is name your estate as the beneficiary – a mistake even smart, highly educated people have made. Doing that will cut short the tax benefits. If the account is a Roth IRA, all funds must be withdrawn within five years. For a traditional IRA the same rule applies unless the former owner was already 70½ – the age at which a traditional IRA owner must begin taking required minimum distributions each year. In that case the distribution rate for the heir is based on the age of the person who died.

What if there’s no beneficiary form on file? Heirs are at the mercy of the IRA custodian’s default policy. Most award an IRA first to a living spouse and then to the estate, but some send it straight to the estate, says Joseph Barry Schimmel, a lawyer with Cohen, Chase, Hoffman & Schimmel in Miami. Few custodians will pass on an IRA directly to the kids without a beneficiary form.

You will need to choose beneficiaries for each account. If you have multiple accounts at the same institution, it’s best to do this with a separate form for each – even if you want to distribute all the accounts the same way – rather than trying to cover several accounts with the same form.

The best way to fill out the form will depend on your goals. Here are some options.

Provide for your spouse. For most people involved in a committed relationship, leaving a spouse or partner well provided for is the No. 1 goal in estate planning. They would typically name the spouse as the primary beneficiary of an IRA and, where the form asks for the share, fill in 100%. In case the spouse dies first, though, they should be sure to name contingent beneficiaries as well.

Maximize the stretch-out. Generally, IRA inheritors must withdraw a minimum amount each year, starting on Dec. 31 of the year after they inherit the account. The rules for spouses are more lenient.

If they choose to, heirs can draw out these minimum required distributions over their own expected life spans. This is known as the stretch-out – a financial strategy to extend the tax advantages of an IRA. (There is no automatic right to a stretch-out with a company plan.) Stretching out the IRA gives the funds extra years and potentially decades of income-tax-deferred growth in a traditional IRA or tax-free growth in a Roth IRA. This is a wonderful investment opportunity. Minimum required distributions are based on life expectancy. The longer the life expectancy, the smaller – as a percentage of the IRA balance – each payout must be. From an income tax perspective, therefore, the best designated beneficiary is a young person.

Keep things even-steven. This is an issue that often comes up when leaving assets to children and grandchildren, whether they are primary or contingent beneficiaries. Let’s say you want your three children to have equal shares of your IRA. On the beneficiary designation form, you would list each of them and indicate that they should get one third of the account.

But what if one of them dies before you? Many standard beneficiary designation forms let you provide for per stirpes distributions; that’s the legal term for passing inheritances down to the next generation if one beneficiary dies before the account owner, rather than automatically having that beneficiary’s share go to other co-beneficiaries. For example, let’s say you have three grown children – Harry, Sam and Molly – whom you want to benefit equally with your IRA. If Harry dies before Molly and Sam, checking “per stirpes” on the form would give Harry’s portion to his children, if he has any, rather than dividing it between Sam and Molly.

Preserve the assets. Some forms offer additional options, such as leaving your retirement assets to a trust. You may have good reasons for naming a trust as the beneficiary of a retirement account, says Bruce Steiner, a lawyer with Kleinberg, Kaplan, Wolff & Cohen in New York. For example, it might be worth considering a trust if the intended beneficiaries are minors, you want to keep the money out of the hands of creditors (for example, divorcing spouses) or control the cash flow to heirs you regard as spendthrifts. The trust can essentially force beneficiaries to take advantage of the stretch-out.

However, complex rules govern this strategy. If the trust qualifies as a designated beneficiary, as the tax code and the Internal Revenue Service use the term, it can take withdrawals based on the life expectancy of the oldest beneficiary. If the trust does not qualify as a designated beneficiary, it will still receive the money but may be required to take the payout within as little as five years.

To qualify as a designated beneficiary, a trust must meet various criteria contained in IRS regulations. Pitfalls abound, so ask your advisers to design a trust that meets your goals as well as the government criteria. Then make sure you name it on the beneficiary designation form on file with the financial institution that holds your retirement account.

Give your heirs options. Sometimes a beneficiary will want to disclaim (legalese for decline) an inheritance, typically with the intent of benefiting another person or a specific charity. People who disclaim, known as disclaimants, are generally treated as if they had died before the person from whom they are inheriting. The assets go to the person next in line, or to a specific charity.

To give your heirs maximum flexibility, name both primary and alternate individual beneficiaries – say, your spouse as primary and children as alternates or your children as primary and grandchildren as alternates. Your primary beneficiary then has the option of disclaiming the account, enabling it to pass to the younger alternate. In this scenario, checking the “per stirpes” box on a form that has one can achieve the same result, Schimmel says.

Benefit charity. Given a choice about how to divide up the assets in their estates, some philanthropically inclined people find it more tax-efficient to give retirement assets to charity and leave their heirs other property. This strategy saves both income taxes and estate taxes. A charity, which is tax-exempt, can draw the funds without paying income tax, and if the estate is subject to tax it can take a charitable deduction for the amount left to charity.

The simplest way to make the gift is by directly naming one or more charities on the beneficiary designation form. You can either make the charity a 100% beneficiary of the account or indicate that the charity is a beneficiary of a specific percentage of the funds and have the rest go to other beneficiaries. Another possibility is to name individuals as the primary beneficiaries and charity as the alternate, giving heirs the option of disclaiming all or part of an IRA inheritance to charity; if you want to do this, you should not check the “per stirpes” box on the beneficiary designation form.

For maximum flexibility, you could make the charitable beneficiary a donor-advised fund. This would enable your heirs to disclaim and have the funds go into an account that they could use to recommend grants at any time.

Once you have completed the form, ask an estate-planning lawyer to review it and coordinate your retirement accounts with the rest of your estate plan. The larger your retirement account and the more complicated the estate plan, the harder it may be to cover all the bases with the custodian’s boilerplate. Depending on how the standard form is set up, you may prefer to have your lawyer prepare a customized, more complex beneficiary designation form. Some lawyers will include a couple of customized beneficiary designation forms as part of the standard estate-planning package. Otherwise, you will need to pay extra for that service, most likely at your lawyer’s hourly rate.

Be aware, though, that using a customized beneficiary designation will most likely delay transferring assets to beneficiaries down the line, since financial institutions will need to interpret documents you’ve submitted, rather than simply working with their own, which have been vetted and kitchen tested.

Deborah L. Jacobs, a lawyer and journalist, is the author of Estate Planning Smarts: A Practical, User-Friendly, Action-Oriented Guide, now available in the third edition.
Posted in Retirement and Estate Planning, Tax Tips | Tagged , , | Comments Off on How To Leave Your IRA To Those You Love

Health Insurance Marketplace Calculator

Health Insurance Marketplace Calculator

If you’re anticipating a bonus or increased salary, you may be able to reduce your household income by contributing to an IRA or HSA, among other ideas.  This may qualify you for the premium tax credit, which would lower your overall tax, or enable lower health insurance premiums for you.

Posted in All Posts, Health | Comments Off on Health Insurance Marketplace Calculator Enhancements (for our investment clients, from Dedicated Investment Advisers, LLC, STEVE CLOTT, CPA CFP®, managing member )

Subject Line: Enhancements – Live Next month

Dear Valued Client,

We are excited to announce that the new web experience will be live next month!

To make for a smooth transition, please familiarize yourself with the enhancements and features. You can access a preview version of the new website by clicking the ‘Use the new version now!’ link in the banner at the top of the current site’s homepage. You can toggle between the current and preview versions using the tabs at the top of your browser.


Enhancements. The preview version of the new website now includes:

  • New Look and A completely redesigned interface and enhanced layout for easier navigation.
  • New Site The site menu displays an organized view of the contents of each tab and enables one-click access to virtually all areas of the website.
  • Prominent Display of Balances and You can view balances by account or a combined total. Immediate access to information such as your top eight holdings will be front and center on the home page.
  • Easy Access to Historical Transactions, statements and trade confirmations are now accessible from a single page.
  • Customizable Dock for Expanded You will be able to take advantage of the space available on larger monitors and arrange different modules in a “Dock”. Several available modules, such as Account Balances and your own Watch Lists, help keep information that you deem important within view at all times.

Differences You May Notice:

  • Consolidated Combined views. The legacy site provides “Consolidated” views of balances, positions, and history accessible from the Accounts tab. While these exact views are not available on the new site, new “Combined” views with improved detail are available. Any page where you see a “Combined” link will allow you to see that same page with values for all of your combined accounts
  • Account Easily switch the current account in focus by using the account switching drop down at the very top of the page.


For a closer look, access a video overview of the new website!

For questions on setup, call 800-431-3500 ext. 3 option 2

Feedback Requested. As you test and use the preview, please share comments and suggestions using the feedback links on the top right of the website. Your feedback is important, and we encourage your response.

Thank you for your business and we hope you find the new web experience to be a positive change to the way you monitor your investments.


Dedicated Investment Advisers, LLC

STEVE CLOTT, CPA CFP®, managing member

Posted in Investments | Tagged | Comments Off on Enhancements (for our investment clients, from Dedicated Investment Advisers, LLC, STEVE CLOTT, CPA CFP®, managing member )

November is Long-Term Care Insurance Awareness Month

Mutual of Omaha LTC pamphlet

Would Your Income Be Enough?

Helping protect your retirement income with a long-term care insurance policy may be a smart solution.

Posted in Long-Term Care | Tagged , , | Comments Off on November is Long-Term Care Insurance Awareness Month





October 21, 2015

Contact: Tracy Lynge

Phone: (410) 965-2671


Patrick P. O’Carroll, Jr., Inspector General for the Social Security Administration (SSA), is warning Social Security beneficiaries about a new scheme involving deceptive post cards alerting them to unauthorized access of their my Social Security accounts and possible theft of their benefit payments.


Identity thieves who gain access to Social Security beneficiaries’ personal information have, in limited instances, been able to create fraudulent my Social Security accounts or gain unauthorized access to existing accounts. They can use these accounts to make unauthorized changes to beneficiaries’ direct deposit information, redirecting monthly benefit payments to a different bank account or a debit card.


We recently received reports that some Social Security retirement beneficiaries in Maine who became victims of this identity theft scheme have received official-looking post cards in the mail alerting them to the fraud scheme, and asking them to call toll-free (877) 411-6118 to correct their information.


The Inspector General is warning Social Security beneficiaries that these post cards are not from Social Security or any official representative of the U.S. Government. This is a new, extremely deceptive practice by the identity thieves to delay victims from reporting the fraud to Social Security. Any victims who receive the post card and call the listed phone number may also be providing additional personal information that an identity thief can use for other fraudulent purposes.


Inspector General O’Carroll urges all Social Security beneficiaries to create my Social Security accounts and monitor them regularly, through; and to contact SSA immediately if they do not receive a payment or otherwise suspect unauthorized changes to Social Security’s records. “If you receive any suspicious communications—mailers, emails, phone calls—please contact Social Security directly to verify the source,” said Mr. O’Carroll.


To contact SSA, you may call toll-free (800) 772-1213, 7 a.m. to 7 p.m. Monday through Friday to speak to a Social Security representative, or visit a local Social Security office. (Those who are deaf or hard-of-hearing can call TTY (800) 325-0778.) For Direct Express® card questions, please call (888) 741-1115 (deaf and hard-of-hearing cardholders should use (866) 569-0447).


You may report suspected fraud within Social Security programs and operations to the Social Security Fraud Hotline at, or by phone at (800) 269-0271, 10 a.m. to 4 p.m.  Eastern Time, Monday through Friday (Those who are deaf or hard-of-hearing may call TTY (866) 501-2101.)



Some state revenue agencies and motor vehicle departments are receiving federal funds to verify the smartphone selfies of taxpayers, say government and corporate officials involved.

Individuals residing in North Carolina and Georgia will be allowed late next year to download a facial recognition app — for selfie matching — that should bar others from claiming tax refunds in their name.


Why enlist the DMV?

“They do a fantastic job of in-person proofing someone’s identity, and that’s a necessary step to get into a high-level assurance for any kind of electronic credential that you might want to issue,” Mark DiFraia, a senior director at biometric technology provider MorphoTrust, said in an interview.

Now that so much of our personal information is readily available online, confidential biographical data alone is not enough protection against ID theft, experts say.

In August, the federal government disclosed that crooks gamed an Internal Revenue Service online tool, by entering stolen private information on about 334,000 individuals, and filed for $39 million in fraudulent refunds.


Earlier this year, TurboTax temporarily unplugged state return e-filing after several states reported criminals using false identities to attempt to collect refunds.


But come late 2016, thousands of state residents will be able to block anyone from filing for their refund who does not have the same facial features, personal information and driver’s license, according to officials. The new service will be offered as a preemptive measure for the tax season that begins Jan. 5, 2017.

Here’s how the anti-spoofing mechanism will work:

  1. An individual downloads a MorphoTrust app that will be available on many types of smartphones.
  2. The user scans the barcode on the driver’s license with the phone.
  3. The person uses the phone to take a picture of the front of the license so the DMV can verify it is a valid card.
  4. And, then “they actually take a selfie,” by bringing the camera up and taking a self-portrait, DiFraia said.
  5. The taxpayer consents to having the barcode scan and pictures cross-matched with data in the DMV’s records.

The images transmitted are not stored by MorphoTrust, the DMV or the state tax collector, DiFraia said. The DMV is not sharing any personal information in its records with the tax collector. The revenue agency only receives a confirmation or denial of a match. The selfie stays on the user’s phone.

“This whole service is built from the core with privacy and consent as their key tenets,” DiFraia said. “We’re not giving DMV any data they don’t already have.”

The trial aims to sign up at least 75,000 individuals across both North Carolina and Georgia.

A federally funded, industry-led initiative to secure online transactions with credentials other than passwords has granted the project $1.8 million, officials announced this week. H&R Block also is a partner in the selfie-authentication effort.

Mike Garcia, acting director of the National Strategy for Trusted Identities in Cyberspace National Program Office, tells Nextgov the service “creates this sort of componentized separation, so the interaction that is occurring with the DMV is completely distinct from the interaction that’s occurring with the department of taxation of revenue. That’s intentional. That’s, from our view, a privacy feature.”


As of now, federal-level tax returns are not part of the project.

“We do not have any plans with the IRS as of yet for this solution,” DiFraia said. “But we’re optimistic that what we’re demonstrating and the ideas contained within the grants would be interesting to them and something that they might consider as a way of providing users with another option where they can proactively do something to try to mitigate the risk of this kind of fraud.”

The IRS paid out $5.8 billion to criminals in 2013, according to the Government Accountability Office.


When ID bandits struck TurboTax earlier, H&R Block reportedly said there was no indication of a similar problem with its tax returns. H&R Block’s security safeguards included requiring a federal e-filed return to be accepted by the IRS before transmitting a state e-filed return. With TurboTax, it was possible to file a state return online without sending a federal return.

This is not H&R Block’s first foray into biometrics. On Aug. 31, the tax software provider announced a partnership with the Transportation Security Administration to house fingerprinting kiosks in H&R Block offices where customers can enroll in TSA’s PreCheck expedited screening program.


Garcia said of the taxpayer verification service, “if done right, it’s actually about putting less information out there.” The data already captured at the DMV, eliminates the need for “going through another proofing event with the office of taxation and revenue,” he added.

Some privacy advocates questioned an anti-fraud program that relies on biometric databases, especially as the Office of Personnel Management just announced the compromise of fingerprints of millions of national security workers.

“No amount of authentication can compensate for insecure hardware and software,” Electronic Frontier Foundation senior staff attorney Lee Tien said. “Plus, we just saw that OPM admitted something like 5.6 million fingerprints were compromised—isn’t biometric authentication wonderful?”

In the taxpayer security situation, “here, I guess the issue is face recognition—but if I can make my phone send a picture of you, is that enough?” he wondered.

By Aliya SternsteinSeptember 24, 2015

(Image via kaisorn/

Posted in Identity Theft, Tax Tips | Tagged | Comments Off on TAX COLLECTORS WANT ‘SELFIES’ TO PROVE YOU ARE WHO YOU SAY YOU ARE


Cost-of-Living Adjustment (COLA):

Monthly Social Security and Supplemental Security Income (SSI) benefits will not automatically increase in 2016 as there was no increase in the Consumer Price Index (CPI-W) from the third quarter of 2014 to the third quarter of 2015.  Other important 2016 Social Security information is as follows:

Tax Rate:
2015 2016
Employee 7.65% 7.65%
Self-Employed 15.30% 15.30%
NOTE:  The 7.65% tax rate is the combined rate for Social Security and Medicare.  The Social Security portion (OASDI) is 6.20% on earnings up to the applicable taxable maximum amount (see below).  The Medicare portion (HI) is 1.45% on all earnings. Also, as of January 2013, individuals with earned income of more than $200,000 ($250,000 for married couples filing jointly) pay an additional 0.9 percent in Medicare taxes. The tax rates shown above do not include the 0.9 percent.
Maximum Taxable Earnings:
2015 2016
Social Security (OASDI only) $118,500 $118,500*
Medicare (HI only) N o   L i m i t
Quarter of Coverage:
2015 2016
  $1,220 $1,260
Retirement Earnings Test Exempt Amounts:
2015 2016
Under full retirement age

NOTE: One dollar in benefits will be withheld for every $2 in earnings above the limit.

The year an individual reaches full retirement age

NOTE: Applies only to earnings for months prior to attaining full retirement age. One dollar in benefits will be withheld for every $3 in earnings above the limit.

There is no limit on earnings beginning the month an individual attains full retirement age.

Social Security Disability Thresholds:
2015 2016
Substantial Gainful Activity (SGA)
Trial Work Period (TWP) $780/mo. $   810/mo.
Maximum Social Security Benefit:
2015 2016
Worker Retiring at Full Retirement Age $2,663/mo. $2,639/mo.**
SSI Federal Payment Standard:
2015 2016
Individual $733/mo. $  733/mo.*
Couple $1,100/mo. $1,100/mo.*
SSI Resources Limits:
2015 2016
Individual $2,000 $2,000
Couple $3,000 $3,000
SSI Student Exclusion:
2015 2016
Monthly limit $1,780 $1,780*
Annual limit $7,180 $7,180*
Estimated Average Monthly Social Security Benefits Payable in January 2016:
All Retired Workers $1,341
Aged Couple, Both Receiving Benefits $2,212
Widowed Mother and Two Children $2,680
Aged Widow(er) Alone $1,285
Disabled Worker, Spouse and One or More Children $1,983
All Disabled Workers $1,166
*  Because there is no COLA, by law these amounts remain unchanged in 2016.

** A decrease in full maximum benefits occurs when there is no COLA, but there is an increase in the national average wage index.
Posted in Retirement and Estate Planning | Tagged | Comments Off on 2016 SOCIAL SECURITY CHANGES

IRS App Offers Payment Options



The IRS2Go app can now be used to make payments, as well as check refund status and receive tax tips.

IRS2Go Version 5.2 now provides access to mobile-friendly payment options such as IRS Direct Pay, a free and secure way to pay tax bills or estimated taxes directly from a bank account. (The IRS also points out that it doesn’t retain account information after payments.)

Available in English and Spanish, the app allows for checking the refund status of an e-filed federal income tax return within 24 hours after the IRS receives the return.

IRS2Go is on Google Play and Amazon, where users on both sites gave the app four out of five possible stars; and on iTunes.
Posted in Tax Tips | Comments Off on IRS App Offers Payment Options

FAFSA Changes for 2017–18

 On Sept. 14, 2015, President Obama announced significant changes to the Free Application for Federal Student Aid (FAFSA®) process that will impact millions of students. Starting next year, students will be able to do the following:
  • Submit a FAFSA® Earlier:  Students will be able to file a 2017–18 FAFSA as early as Oct. 1, 2016, rather than beginning on Jan. 1, 2017. The earlier submission date will be a permanent change, enabling students to complete and submit a FAFSA as early as October 1 every year. (There is NO CHANGE to the 2016–17 schedule, when the FAFSA will become available January 1 as in previous years.)
  • Use Earlier Income Information: Beginning with the 2017–18 FAFSA, students will report income information from an earlier tax year. For example, on the 2017–18 FAFSA, students (and parents, as appropriate) will report their 2015 income information, rather than their 2016 income information.

The following table provides a summary of key dates as we transition to using the early FAFSA submission timeframe and earlier tax information.

When a Student Is Attending College (School Year) When a Student Can Submit a FAFSA Which Year’s Income Information Is Required

July 1, 2015–June 30, 2016

January 1, 2015–June 30, 2016


July 1, 2016–June 30, 2017

January 1, 2016–June 30, 2017


July 1, 2017–June 30, 2018

October 1, 2016–June 30, 2018


July 1, 2018–June 30, 2019

October 1, 2017–June 30, 2019


If you’d like more details about the upcoming changes, you may read the following informational pieces from the U.S. Department of Education and the White House:

We will update this site as the 2017–18 FAFSA launch approaches. For now, there is nothing you need to do.
Posted in Education | Comments Off on FAFSA Changes for 2017–18