What is an IRA?
Like most people who haven't begun to plan for their retirement, you're probably wondering what is an individual retirement account? An IRA is like a trust or custodial account. There is a trustee or custodian that looks over your funds, such as a bank, mutual fund, savings institution, etc. The trustee invests your money according to the plan that you have selected.Self-directed IRAs
A self-directed IRA is established by the investor who wants to have more of a say in his/her investments. In this type of account, you can make your own investment decisions, with the trustee or custodian simply handling and managing your account. The fees on self-directed IRAs, as a result, are very high. It would not make sense to open a self-directed IRA until you have built up a large IRA fund and have considerable experience in investing. In these types of funds, the investor is prohibited from investing in all collectibles, with the exception of US minted coins of one ounce or less.IRA Annuities
An IRA annuity is a contract or an endowment that is issued by an insurance company which pays a specified amount monthly beginning at age 59½, or at your retirement. This payment continues for life. There is no required custodian or trustee needed to structure such an annuity. In fact, you can get the terms of the annuity configured in such a way that the contract is on your life, or a joint and survivor contract with you and your spouse. The annuity that the insurance company pays simply has to meet the terms of an IRA that you own. There are some limitations on this contract, however. No deduction is permitted for the portion of the premium allocable to life insurance. This nondeductible amount is referred to as a P.S. 58 and will be supplied by the insurance agent that you deal with. In addition, there are no loan provisions on these annuity contracts because borrowing or pledging of the contract is not allowed under an IRA. One last note of caution when setting up an IRA annuity: There are steep insurance company fees initially, so determine how much of the charges you are paying are for the purchase of the annuity itself and how much is for the insurance company.IRA Break-even Point for Young Workers
The way that IRAs are structured, an investor is not allowed to deduct money from the account before the age of 59½, without incurring a 10% penalty on top of regular taxes on the amount that they deduct. In a sense, this money, even though it is your money, is frozen in the IRA until that age. Thus, it would not make sense for the young investor who has major expenses such as college, home, etc. to worry about, to tie up his/her funds in an IRA. The break-even point for the typical investor when dealing with IRAs varies considerably, especially due the specifics of the IRA account that you have, and the tax bracket that you are in. In general, the break-even point is longer for younger people than it is for older ones. If your IRA earns a 10% interest rate and you are in the 28% tax bracket, you will break-even on your investment into the IRA in about 10 years. A person who is older than 59½, however, starts to come out ahead on his/her IRA after only one year, because he/she does not have to worry about penalties on withdrawing money. It sounds complicated, and it is, so there is no need to rush into anything.IRA Contribution Limits
You are allowed to invest up to $2,000 into your IRA every year if you earn that much, or all of your income if it is less than that. You may invest less than that, based on your discretion. If you are married and both of you work, then the maximum total contribution allowed is $4,000. Depending on your overall financial picture, it may make sense for you to vary the amount that you invest each year into your IRA. Also, you can only contribute money to an IRA from earned income from personal services, salary, wages, tips, commissions, bonuses, etc. Investment income is specifically disallowed from being contributed to an IRA.IRA Deductions
It is also important to know your IRA deductions. IRA contributions vary from completely deductible, to partially deductible to not deductible at all. This can become messy, so we will tell of the two instances when your contributions are 100% deductible: 1. Your adjusted gross income (AGI) is less than $25,000 if you are single or the head of the household. Your adjusted gross income (AGI) is less than $40,000 if you are married filing a joint return. 2. You are not covered by any employer retirement plan. In this instance it does not matter what your AGI is. For the people whose incomes exceed the amounts stated above and are in a company retirement plan, the contributions to an IRA are subject to deduction phaseout. The deduction is reduced over the next $10,000 of AGI. In other words, the AGI range for phaseout of IRA deduction is $25,000- 35,000 for a single person or head of a household, and $40,000-50,000 for a couple fling jointly.Age Limit on Contributions
There is no minimum age requirement to make contributions to an IRA. Children who have earnings can contribute to this fund, but should be aware that this money will not be accessible to them until age 59½, at least without penalty. At the other end, you cannot contribute to your IRA in the year that you reach the age of 70½. Also, once you reach age 70½, you have to start taking distributions (withdrawals) from your IRA by April 1 of the following year.When to Contribute to Your IRA
A contribution for 1996 may be made any time during 1996, but no later than April 15, 1997. Also, you cannot make contributions to your IRA before the start of the year. Your 1997 contribution cannot be made prior to January 1, 1997. As we mentioned earlier, you do not have to make all of your contributions at once. You will earn different interest if you contribute money at different times of year. You will earn the prevailing interest, depending on whatever the going rate is. If you have the cash to do so, it is advised by many to invest as much as possible into your IRA at the beginning of the year because earnings will accumulate tax free.Penalties
There is a penalty for contributing too much to your IRA. If you contribute more than is allowed, whether as a deductible or nondeductible contribution, the excess amount is subject to a 6% penalty. The penalty tax is cumulative, as well. You will be subject to another penalty in the following year on the excess contribution. So just be careful! Also, as we mentioned earlier, there is a penalty of 10% on premature distributions made from your IRA. An exception is if you are disabled and need the money in your IRA. In this case, there is no 10% penalty.What happens after age 70½?
You are required to start taking distributions from your IRA the calendar year in which you reach age 70½. The IRS publishes life expectancy figures in their annuity tables. The full tables can be found in the IRS Publication 575. You must withdraw a particular amount according to this table. The minimum distribution is refigured every year according to your life expectancy. This can prove to be an advantage if you want to take smaller distributions and conserve the principal that you had invested originally. This whole process continues until, obviously, the IRA is exhausted.Exactly what IS the difference between an annuity and an IRA (individual retirement account)? Do annuities still makes sense, given the arrival of the Roth IRA and the "new-and-improved" traditional IRA? I'll attempt to answer these and other questions in the next few articles, starting with today's overview of the important differences between IRAs and annuities. Future pieces will look at what Roth and traditional IRAs, as well as fixed and variable annuities, each have to offer.
The Differences, In a Nutshell
For retirement investors, traditional IRAs and annuities offer similar advantages, including the opportunity to put off paying taxes on any earnings until withdrawal. Both the Roth and traditional IRA and annuities also carry similar tax penalties for any "unauthorized" early withdrawlas before age 59-1/2 - a 10% tax penalty on top of any income taxes owed.
However, each investment has features that make it appropriate for different types of investors. Some of these include -
Tax-deductible contributions - All or a portion of traditional IRA contributions may be tax deductible [depending on income level and your own or your spouse's eligibility to participate in an employer-sponsored retirement plan, such as a 401(k)]; annuity contributions are not.
Tax-free withdrawal of earnings - The Roth IRA allows you to build earnings (interest and capital gains) tax-free, though tax-deductible contirbutions are not permitted. With annuities and traditional IRAs, you always owe income taxes on earnings at some point.
Withdrawal minimums - IRAs limit the amount you can contribute each year ($2,000 per person), while annuities allow unlimited annual contributions.
Withdrawal minimums - To avoid tax penalties traditional IRA withdrawals must begin at 70-1/2, while Roth IRAs and annuities typically allow you to put off making withdrawals until later on.
The life insurance bonus - Annuities offer a guaranteed death benefit (payment to a beneficiary), while IRAs do not. On the other hand, annuities may also carry some special fees associated with these life isnurance benefits.
The Summary
An IRA can be a terrific way to invest for retirement, especially if you are able to deduct from your income all or a portion of your contributions. Annuities - although contributions aren't tax deducible - can be particularly attractive if you're looking for tax-advantaged growth opportunities well into your retirement years, are not planning to make withdrawals for several years, and seek some of the benefits of a life insurance policy.
In short, you need to know what you need. And you can make a better decision about this once I give you my summary in the next few weeks of the individual features of these products.
Introduction
The Export Tax Rebate Custody Loan refers to a short-term working capital loan backed by accounts receivable from the export tax rebate granted to the exporter. Under such arrangement, Hua Xia Bank helps the exporter in resolving short-term funding difficulties due to undue funding of export tax rebate under the precondition where Hua Xia Bank exercises custody over the company's export tax rebate account.
Functions and Features
It alleviates the short-term funding difficulties of companies due to insufficient export tax rebate. It also partly resolves the mortgage security problems of loans and fosters exportation.
Target Clients
Exporters with import/export licence, good credit record at Hua Xia Bank, and good business prospects, having a settlement account and export tax rebate account with Hua Xia Bank and appointing Hua Xia Bank as the main bank of import and export settlement.
Currency and Tenor
RMB is the sole eligible currency in service. The loan tenor for custodian export tax rebate account for one order within the credit line depends on the cycle of tax rebate and is normally within 6 months with maximum tenor of one year.
Interest Rate
The loan interest rate is executed as per short-term liquidity RMB loan interest rate listed in loan interest rate table published by Hua Xia Bank.
Application Materials
1) Credit application;
2) Corporate information and articles of association;
3) Business licence, certificate of tax registration, corporate code certificate, loan certificate (card), capital verification report for the registered capital or statement of funding source, certificate of import/export licence;
3) Resolutions or letter of authorization of company's authorized institution permitting loan application;
4) ID document of the legal representative or the letter of authorization, CV, and photocopy of the ID document of the authorized agent;
5) Financial statements of recent three years audited by a CPA (auditing) firm and the most recent financial reports;
6) Certificate of company's tax rebate account and confirmation letter from the tax authority, company's export tax rebate track record of the past three years; and
7) Other documents as required by Hua Xia Bank.
The Export Tax Rebate Custody Loan refers to a short-term working capital loan backed by accounts receivable from the export tax rebate granted to the exporter. Under such arrangement, Hua Xia Bank helps the exporter in resolving short-term funding difficulties due to undue funding of export tax rebate under the precondition where Hua Xia Bank exercises custody over the company's export tax rebate account.
Functions and Features
It alleviates the short-term funding difficulties of companies due to insufficient export tax rebate. It also partly resolves the mortgage security problems of loans and fosters exportation.
Target Clients
Exporters with import/export licence, good credit record at Hua Xia Bank, and good business prospects, having a settlement account and export tax rebate account with Hua Xia Bank and appointing Hua Xia Bank as the main bank of import and export settlement.
Currency and Tenor
RMB is the sole eligible currency in service. The loan tenor for custodian export tax rebate account for one order within the credit line depends on the cycle of tax rebate and is normally within 6 months with maximum tenor of one year.
Interest Rate
The loan interest rate is executed as per short-term liquidity RMB loan interest rate listed in loan interest rate table published by Hua Xia Bank.
Application Materials
1) Credit application;
2) Corporate information and articles of association;
3) Business licence, certificate of tax registration, corporate code certificate, loan certificate (card), capital verification report for the registered capital or statement of funding source, certificate of import/export licence;
3) Resolutions or letter of authorization of company's authorized institution permitting loan application;
4) ID document of the legal representative or the letter of authorization, CV, and photocopy of the ID document of the authorized agent;
5) Financial statements of recent three years audited by a CPA (auditing) firm and the most recent financial reports;
6) Certificate of company's tax rebate account and confirmation letter from the tax authority, company's export tax rebate track record of the past three years; and
7) Other documents as required by Hua Xia Bank.
On October 11, 2009, Governor Schwarzenegger signed into law major changes to the California structured settlement transfer, or "factoring", statute. Senate Bill 510, co-sponsored by the Chair of the Senate Judiciary (Senator Corbett, a Democrat) and Assemblyman Tran (a Republican), becomes law on January 1, 2010.
Federal law (IRC 5891) mandates that all transfers of structured settlement payment rights be approved by a state court, or face a stiff punitive excise tax. California and 46 other states have laws that regulate structured settlement factoring. California first passed a structured settlement transfer law in 1999.
In addition to many minor "clean up" provisions, these revisions to California's transfer law also add for the first time certain factors that the court must consider when determining whether a transfer should be approved. These 15 factors include the "reasonable preference and desire" of the seller, any existing child support obligations, whether the future payments were intended for medical care, and whether there have been previous sales or attempted sales.
Another nuance of the revised California transfer law is the requirement under certain circumstances to notify the seller's former personal injury lawyer that they are trying to sell payments. This requirement only applies to fairly recent settlements in California. The former attorney is invited to contact the seller if desired, but is not required to do so. Of course, the seller can elect not to speak with his or her former counsel as well.
Politically this bill was a compromise between various interest groups, including the Consumer Attorneys of California (CAOC, formerly known as the California Trial Lawyers) and the National Association of Structured Settlement Purchasers (NASP). As one of the participants in this process on behalf of my company and NASP, I am grateful to the CAOC for their work on this bill and for the collegial atmosphere that prevailed.
For more information, watch the below video interview I did with Scott Drake of the Legal Broadcast Network. The text of SB 510 is here.
S2KM has begun a mid-year 2009 strategic analysis of the structured settlement industry. This analysis includes attending and reporting about 2009 structured settlement professional stakeholder meetings plus continuing conversations with structured settlement industry leaders.
To organize and publish S2KM's findings and analysis, S2KM is developing, and plans to publish and update, a related public wiki titled "Structured Settlements 2009". Here is a preview of this S2KM public wiki home page.
Purposes of S2KM's Structured Settlements 2009 wiki
- Provide S2KM with a dedicated online resource to identify, capture, organize and publish 2009 structured settlement strategic analysis.
- Demonstrate how blogs and wikis can interact to improve strategic analysis and learning.
- Encourage structured settlement knowledge leaders and professional associations to endorse, encourage and participate in strategic industry analysis.
- Help all structured settlement stakeholders to better understand, improve and grow structured settlements.
- S2KM primary analytic resources - S2KM blog reporting for:
- 2009 structured settlement stakeholder meetings - the Table of Contents incorporates and features educational discussions from the following conferences:
- Structured settlement professional stakeholder association prior year meetings
- Related topics and knowledge leaders:
- 2009 structured settlement stakeholder meetings - the Table of Contents incorporates and features educational discussions from the following conferences:
- S2KM's transitional perspective - structured settlements are undergoing two primary transitions:
- From claim management to settlement consulting:
- NSSTA: Settlement Consulting - Joseph DiGangi
- SSP: Settlement Planning Industry Update - Patrick Hindert.
- SSP - State of the Art Settlement Planning - Joseph Tombs
- NSSTA: Looking Forward - Chris Diamantis and Dan Durbin.
- From historic communication, learning and work processing to Internet-based models:
- NSSTA:Web 2.0 - Patrick Hindert.
- From claim management to settlement consulting:
- Public policy - no 2009 stakeholder association discussions.
- Legislation and regulations
- Existing
- Federal
- SSP: Tax Panel - Richard Risk; Sylvius von Saucken; Peter Wayne.
- State
- SSP: Judicial Approval of Minors Settlements - Phillip McCrury.
- NSSTA: Exemptions for Structured Settlement Payments - Craig Ulman.
- Federal
- Proposed - no 2009 stakeholder association discussions.
- Federal
- State
- Political strategy
- NSSTA: Federal Entitlement Programs - Andrew Imparato.
- NSSTA: Washington Reports - Eric Vaughn.
- SSP: AAJ Strategy - John Bowman.
- NSSTA: Federal and State Issues - Len Blonder.
- NSSTA political speakers:
- Senator Richard Durbin (D) from Illinois;
- Senator Charles Grassley (R) from Iowa;
- Congressman Charles Rangle (D) from New York;
- Congressman Kendrick Meek (D) from Florida;
- Congressman James Langevin (D) from Rhode Island;
- Congressman Joseph Crowley (D) from New York;
- Congressman Dave Camp (R) from Michigan;
- Congressman Brian Higgins (D) from New York;
- Congresswoman Allyson Schwartz (D) from Pennsylvania;
- Congressman Joseph Courtney (D) from Connecticut;
- Plus the Chiefs of Staff for four congressmen.
- Existing
- Case law
- SSP: Litigation and Legislative Update - Anthony Alfieri.
- NSSTA: Spencer v. Hartford - Michael Miller.
- NSSTA: Fresno County Factoring Cases - Illana Hanau.
- Primary and secondary markets
- NSSTA: Secondary Market Update - Michael Miller and Illana Hanau.
- Government benefits
- NSSTA: Federal Entitlement Programs - Andrew Imparato.
- ASNP: Medicare Secondary Payer Compliance - Mark Popolizio.
- ASNP:Lien Resolution Strategies - William Browning; Mark Popolizio; Sylvius von Saucken.
- SSP: MMSEA Section 111 - Mark Popolizio.
- NSSTA: Medicare Panel - Roy Franco; Mark Popolizio; David Korch; Rafael Gonzoles.
- NSSTA: Medicaid Panel - John McCulloch; Timothy O'Driscoll; Dennis McAndrews
- Structured settlement economics
- ASNP: Structured Settlement Annuities - Jack Meligan and Michele Whitmore.
- SSP: Life Insurance Insolvencies - Eric Nordman.
- NSSTA: Financial Strength Ratings - William Pargeans.
- Structured settlement funding products
- NSSTA: 468B QSFs - Henry Strong, William Winslow, James Klapps.
- ASNP: Structured Settlement Annuities - Jack Meligan and Michele Whitmore.
- ASNP: 468B QSFs - Richard Risk and Jason Lazurus.
- SSP: Settlement Trusts - Christi Fried.
- SSP: Settlement Trust Software - David Eichenbaum.
- Transactional analysis
- ASNP: Anatomy of a SNSP Case - Frank Johns, Kevin Urbatsch, Patrick Hindert.
- Stakeholder associations
- NSSTA (2), SSP and ASNP 2009 meetings.
- Ethics
- NSSTA: Business Ethics - Father Oliver Williams.
- NSSTA: Business Ethics - Mike Jones.
- Standards
- SSP: Registered Settlement Planner - Joseph Tombs.
- Business models
- Claim management
- NSSTA: Plaintiff and Defense Brokers - Ronald Sullivan, James Early, Roger Bernstein, Bruce DeBacher, Michael Goodman.
- SSP:Structured Settlement Insolvencies - Randy Dyer.
- SSP: Growing Structured Settlements - Randy Dyer.
- SSP: In-House Structured Settlement Programs - Kevin Mack.
- NSSTA: Minnesota Bridge Collapse - Jerry Lothrop.
- Settlement consulting
- NSSTA: Settlement Consulting - Joseph DiGangi.
- ASNP: Integrating SNSP with an Elder law Practice - Tim Nay and Sandy Conley.
- ASNP: Marketing to the Trial Bar - Frank Johns, Jason Lazurus, Kevin Urbatsch.
- SSP: State of the Art Settlement Planning - Josep
- Claim management
This post continues S2KM analysis and commentary about "settlement consulting" as an alternative business model for structured settlements introduced by Joseph DiGangi at the NSSTA 2009 Winter Meeting.
DiGangi characterized structured settlements as a fundamental settlement consulting product and featured structured settlements in a settlement consulting case example.
DiGangi's discussion identified four stages within the settlement consulting process:
- Analysis - including needs assessment;
- Planning;
- Implementation; and
- Monitoring.
Prior S2KM posts about settlement consulting have:
- Reviewed DiGangi's NSSTA presentation;
- Discussed business definitions and boundaries; and
- Outlined settlement consulting history - from a structured settlement perspective.
- Demonstrate the complexity of structured settlements:
- In the context of settlement consulting; and
- From the perspective of an injury victim.
- Provide an analytic framework to:
- Study the role of structured settlements in settlement consulting;
- Compare alternative structured settlement business models:
- Settlement consulting (or planning); and
- Traditional claim management.
- Discuss the roles, expertise and work product of various settlement consulting stakeholders;
- Define "due diligence" and discuss potential professional liabilities;
- Identify settlement consulting legal entities and improve legal documentation;
- Improve settlement consulting business standards and performance metrics;
- Highlight the importance of IRC 468B QSFs;
- Demonstrate linkage between various settlement consulting components: including
- Primary and secondary structured settlement annuity markets;
- Structured settlement annuities and settlement trusts;
- Settlement trusts and the secondary annuity and life markets.
- Prioritize legislative and regulatory issues and develop lobbying strategies.
- Focuses more narrowly on the IRC 130 qualified assignment transaction;
- Assumes structured settlement payees are injury victims - as opposed to trustees and custodians;
- Ignores:
- IRC 468B qualified settlement funds (QSFs);
- The secondary structured settlement market;
- Non-qualified structured settlements.
- Attempts to construct planning strategies and solutions as part of the litigation and negotiation process;
- Encourages "early involvement" by plaintiff and defense structured settlement agents who:
- Represent the same annuity providers;
- Collaborate to maximize shared annuity sales;
- Provide similar "value-added" services (including litigation support) to justify commissions;
- Lack licensing and training to sell non-annuity products;
- Fail to disclose their conflicts of interest or their compensation-sharing arrangements.
- Assume, but fail to address, the "best interests" of injury victims and other structured settlement stakeholders.
- S2KM believes the 468B QSF settlement consulting (and/or planning) model is "vastly superior" to the claim management model for the vast number of settlement consulting stakeholders.
- Settlement Consulting Stakeholders:
- Injury victims and their families;
- Federal and state governments including regulators;
- Judges;
- Mediators;
- Guardians;
- Trustees;
- Custodians;
- Defendants and their insurers and re-insurers;
- Plaintiff trial attorneys;
- Special needs attorneys;
- Medicare set-aside professionals;
- Financial and insurance advisers and intermediaries;
- Life care planners; and
- Allocators.
- "Vastly superior" should be (and hopefully will be) defined and demonstrated by industry metrics (including time and money metrics) comparing the claim management and settlement planning models and developing the best alternative with continuing improvements.
- S2KM further believes the 468B QSF settlement consulting model will substantially grow the structured settlement market.
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