Calling UK Public Sector Pension Scheme Members..,

CLICK to find out what your pension scheme is not telling you!

CLICK HERE to claim a FREE pension assessment report NOW

Unfortunately, pension promises for providing current income levels in retirement are unsustainable, mainly due to the ballooning liabilities of these unfunded schemes.

Government reforms to address this has created many new changes to the schemes, resulting in approximately 4 million public sector workers will see huge reductions in their pensions, along with raising the state retirement age for access.

BONUS:
Register for an in-depth overview now, and I’ll also send you the top actionable compliant strategies which many individual members are using to secure their pensions.

Claim your FREE comprehensive pension assessment valuation report HERE

Retirement Income: Smart Tax Strategies

For many, the two most important sources of retirement income are Social Security benefits and distributions from retirement accounts, including required minimum distributions after age 70 ½.

But these two present a tax challenges.

The rules for calculating taxes on distributions from retirement plans are not the same as those for taxing Social Security.

Withdrawals from employer retirement plans and IRAs are taxed as ordinary income, but Social Security benefits may or may not be taxable, depending on a few factors.

Advisor’s must help their clients create a plan that will optimize both income sources in terms of benefits and taxes.

Under the tax code, there are special rules for calculating the taxation of Social Security benefits. No one ever pays taxes on more than 85% of their benefits.

This means 15% is tax-free for everyone. However, these tax rules do not apply to distributions from retirement plans.

The amount of your clients’ Social Security benefits that are subject to income tax depends on the total amount of combined, or provisional, income they have.
The formula for calculating this can be a bit confusing; see the “Add It Up” graphic.

SS plus AGI IRS form 1040

Click image for a FREE Strategy Fact-Sheet on international FATCA compliant, Contract Based Personal Contribution Retirement Plans

Note that adjusted gross income includes wages, self-employment income, dividends and interest, capital gains, pension payments and rental income, among other items.

If a client is single and has a combined income between $25,000 and $34,000, up to 50% of the Social Security benefits are subject to tax. If the combined income is more than $34,000, up to 85% of Social Security benefits are subject to tax.

If clients are married filing jointly, they may have to pay taxes on 50% of Social Security benefits if their combined income is between $32,000 and $44,000. And if their combined income is more than $44,000, up to 85% of their Social Security benefits are subject to tax.

Unlike many thresholds in the tax code, these amounts are not indexed for inflation.

RETIREMENT PLAN RMDs

RMDs and other distributions from retirement plans add a layer of complexity to the taxation of Social Security benefits.

When calculating combined income for the taxation of Social Security income, you must include distributions from retirement plans, including RMDs from both IRAs and employer plans.

RMDs can increase the taxation of Social Security because they raise the AGI and thus boost combined income. But, of course, clients should not stop taking RMDs to lower the taxation of their Social Security, because there is a 50% excess accumulation tax for not taking (or not taking enough of) an RMD.

Clients should plan, however, for the potential impact RMDs may have on Social Security benefits. There are several planning strategies advisors should at least consider.

SPENDING DOWN THE IRA

One strategy that could make sense for clients is “spending down” IRAs in early retirement to delay claiming Social Security benefits.

This approach offers several primary benefits. Among them:

  • Delaying Social Security benefits can result in higher monthly payments for life (and, potentially, over the lifetime of a surviving spouse).
  • Required minimum distributions will be smaller due to lower year-end balances. As a result, combined income may be lower, resulting in a smaller amount of Social Security benefits becoming taxable.
  • By swapping out IRA income for Social Security benefits, a client may be able to have more spendable dollars due to the relative tax efficiencies of those benefits.

However, there are also some drawbacks to this approach:

  • There is no guarantee a client will live long enough to see the benefits of delaying Social Security payments.
  • IRA assets remaining at a client’s death can be passed on to beneficiaries, but Social Security benefits generally die along with the client (or spouse).

ROTH CONVERSIONS

Another potential strategy to consider is converting IRAs and other pretax retirement account funds to Roth IRAs prior to taking Social Security benefits.

The primary benefits of this approach include:

  • Unlike supposedly tax-free municipal bond interest, tax-free distributions from Roth IRAs don’t increase combined income. Therefore, tax-free distributions from Roth IRAs can be taken without subjecting Social Security benefits to increased taxation.
  • Roth IRAs have no required minimum distributions, so clients can supplement their other income (including Social Security benefits) with distributions from Roth IRAs as they please, without triggering taxation of Social Security benefits.

There are, of course, some downsides to this approach as well.

For one thing, it may be more tax efficient for a client to have more of their future Social Security benefits included in their income than it is for them to complete a Roth IRA conversion today.

And, of course, there’s no guarantee that the rules for Roth IRAs today will be the same as when a client is eligible to claim Social Security benefits.

If the Roth IRA conversion strategy is going to be used to minimize the taxation of Social Security benefits, it’s often best to do so before benefits are received. That’s because, when clients are receiving Social Security benefits, converting IRA or employer plan funds to a Roth IRA may increase the taxation of Social Security for the year of the conversion.

On the other hand, affluent clients who have higher combined income from wages, interest, dividends and RMDs may already be paying tax on 85% of their Social Security benefits. A Roth IRA conversion won’t affect their Social Security, because the taxes they’ll owe on this income can’t increase.

Of course, the Roth IRA conversion itself will add to their tax bill and could push them into a higher tax bracket.

Click image for a FREE Strategy Fact-Sheet on international FATCA compliant, Contract Based Personal Contribution Retirement Plans

Click image to download a FREE Strategy Fact-Sheet on international Contract Based Personal Contribution Retirement Plans

SAMPLE CASE

A recent tax court case illustrates the confusion over how the tax rules work for both Social Security benefits and RMDs, and how they can affect each other.

In this case in question, Dennis J. McCarthy et. ux. v. Commissioner, Holly and Dennis McCarthy, a married couple, were both receiving Social Security benefits. Holly — a retired school nurse who participated in Ohio’s State Teachers Retirement System’s qualified retirement plan — was also taking distributions from that plan.

In 2011, she received a $27,701 plan distribution. She received a copy of IRS Form 1099-R reporting a $27,701 gross distribution and a taxable amount of $27,413. (The small difference between the gross and taxable amount was $288 of tax-free basis, or after-tax, funds.)

No federal income taxes were withheld, in all likelihood because she chose to have zero withheld for taxes.
The McCarthys then filed a joint federal income tax return for 2011 in which they reported only one-third ($9,233) of the retirement plan distribution, with the tax able amount as $8,945 ($9,233 – $288 basis = $8,945).

Holly and Dennis also reported receiving Social Security benefits totaling $37,600 — an amount that, in truth, included some of Holly’s plan distribution — with a zero taxable amount on their tax return.

In 2013, the IRS sent the couple a Notice of Deficiency for errors in their 2011 federal income tax return. The IRS claimed the McCarthys owed over $1,000 more in taxes, because they had failed to include over $18,000 of Holly’s plan distribution as income.

The IRS also claimed that the couple should have included in income more than $3,800 of Dennis McCarthy’s Social Security benefits that year.

FIGHTING THE FEDS

The McCarthys disagreed with the IRS and took the issue to Tax Court, where they represented themselves. They were age 82 at the time.

Unfortunately for the McCarthys, the court agreed with the IRS and ruled that the pair owed taxes as a result of their miscalculations with respect to both the retirement plan distributions and the Social Security benefits. The court noted that the McCarthys had mistakenly claimed some of the Ohio teachers plan distribution as Social Security benefits.

In its ruling, the court found that “by classifying a portion of the STRS Ohio distribution as Social Security benefits, petitioners sought to minimize tax on the untaxed benefits Mrs. McCarthy accrued during her career.”

The court also ruled that the couple miscalculated the taxable amount of Dennis McCarthy’s Social Security benefits. He received $19,132 in Social Security benefits and reported none of it as taxable for 2011.

The McCarthys’ only argument was to ask the court to make an “equitable resolution” in this case. They obviously were confused, and argued that it was unfair that two agencies of the federal government tax their retirement distributions differently.

They said: “In essence, what we seek is ‘Judicial Redress’ of the financial inequity created by two different Arms of Government (SSA and IRS) defining the same monies (2/3 of the STRS Pension) in two completely opposite ways each to the detriment of the taxpayer. This seems to violate Court Rulings that the Government ‘Can’t Have Its Cake And Eat It.’ ”

The McCarthys are right that this is confusing. Even so, the court responded by saying that it must enforce the law as written and cannot change it to give them a break; only Congress can do that.

No one wants to spend their retirement years fighting the IRS. Advisors must ensure that their clients avoid a fate similar to that of the McCarthys by helping them understand the often confusing rules of taxation for different income sources.

NOW AVAILABLE for US Taxpayers in Secure Compliant TAX FREE Jurisdictions!
A special type of retirement account funded with after tax dollars that acts like a 401K or an IRA, but with major differences…

Click Link here to download a FREE Strategy Fact-Sheet for US Expats on international Contract Based Personal Contribution Retirement Plans

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Click image for a FREE Strategy Fact-Sheet on international FATCA compliant, Contract Based Personal Contribution Retirement Plans

Schedule a free strategy review here: Adrian.Rowles@devere-group.com 

Original article by Ed Slott, a CPA in Rockville Centre, N.Y., is a Financial Planning contributing writer and an IRA distribution expert, professional speaker and author of several books on IRAs. Follow him on Twitter at @theslottreport.

Top 3 Financial Concerns of Boomers Approaching Retirement

financial worries

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The number one financial concern of baby boomers nearing retirement is not being able to maintain their current lifestyle throughout their golden years, reveals a new survey by one of the world’s largest independent financial advisory organizations.

The second biggest worry is not being able to stop work when they want to; and the third is not being in a position to financially support close relatives…

Original article:
The Top 3 Financial Concerns of Boomers Approaching Retirement | ThirdAge.

The World Wide Bank Fraud & the Case Against Bank of Canada

The world wide Bank Fraud and what a Canadian lawsuit is challenging.
The Exchange with Amanda Lang & Rocco Galati – One of the country’s leading lawyers:

From CBC News

Financial planning is an educational journey from our younger self to your older self. The final destination will be influenced by our financial & political awareness, the tool box selected for your strategy, and if the right professional team is employed to guide the way.

Strengthen your families future potential with a dedicated professional financial consultant.

If you haven’t yet secured an independent financial advisor, now is the time to talk:   adrian.rowles@devere-group.com

What Next ? Recommended insights for money management

This short video is a highly recommended 35 minute talk on what to expect in the markets & what strategies to consider for protection.

Video shared by my good friend Tres Knippa’s Short Japan Debt Newsletter

Now China and the IMF are in talks to include the Chinese Yuan as the Next RESERVE CURRENCY.

Are you familiar with the SDR’s (Special Drawing Rights) !?
The International Currency issued by the IMF held as reserves in central banks globally.

SDRs are international foreign exchange reserve assets. Allocated to nations by the IMF, an SDR represents a claim to foreign currencies for which it may be exchanged in times of need. Originally created by the IMF in 1969 for m
embers and prescribed holders to use their SDR holdings to conduct transactions with the IMF.

The nominal value of an SDR is derived from a basket of currencies, with, specifically, a fixed amount of Japanese Yen, US Dollars, British Pounds and Euro’s, without RMB.

A senior Chinese central bank official said Thursday that the country is “actively communicating” with the IMF on the possibility of including the yuan, or RMB, in the basket of the Special Drawing Rights (SDRs).

From Wikipedia: Special drawing rights (XDR aka SDR) are supplementary foreign exchange reserve assets

From the IMF: SDR Allocations and Holdings for all members as of February 28, 2015

How will CHINA’s move one step closer to becoming an OFFICIAL RESERVE CURRENCY effect your portfolio !?

Yuan

China is pushing for the International Monetary Fund to endorse the Chinese Yuan as a global reserve currency alongside the dollar and Euro.

A senior Chinese central bank official said Thursday that the country is “actively communicating” with the IMF on the possibility of including the Yuan, or RMB, in the basket of the Special Drawing Rights (SDRs).

Including the Yuan in the SDR system would allow the IMF to recognize the ascent of the world’s second-biggest economy while aiding China’s attempts to diminish the dollar’s dominance in global trade and finance.

“We hope the IMF can fully take into account the progress of RMB internationalization, to include RMB into the basket underlining the SDR in foreseeable, near future,” said Yi Gang, vice governor of the People’s Bank of China.

The Yuan became the world’s No. 2 currency for trade finance globally in 2013, and overtook the Canadian and Australian dollars to enter the top five world payment currencies in 2014, according to global transaction services organization SWIFT.

China said the Yuan has also been used as a reserve currency in some countries and regions.

LINK TO STORY: China-IMF talks under way to endorse Yuan as global reserve currency

Market Analytics & Technical Analysis. March 2015

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2015 will actually be the first year since 2007 without some form of quantitative easing!

During this six year period the Fed’s Balance Sheet has exploded by over $4 trillion and the US Government has spent another $11+ trillion.
Between October and November of last year, the Federal Government issued $1 trillion in new debt in one month.

The bond bubble was $80 trillion going into 2008. Today it’s over $100 trillion. The US had $5 trillion in public debt going into 2008.
Today it has over $18 trillion.

Despite all of this the US has experienced the weakest recovery in 80+ years! That is assuming it’s really a recovery? Every other recession going back to 1954 saw rates begin to rise a few years into the recovery.

It makes me pause and think that a year without monetizing bonds is going to be a big shock to the financial markets and stock traders.

As we have spelled out in previous reports we are seeing global weakness around the world with very worrying signs coming from China and Emerging Markets. The US has been held up as the strongest economy with which to pin optimistic hopes.

However, US Macro Surprises have suddenly become alarmingly negative (see bottom below) and are clearly following forward earnings estimates lower (above).

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Extract from one of my favorite macro economic analysts, Gordon T Long.

Have you reviewed your strategy with a financial advisor ?

Everything U.S. Expats Need to Know About IRS Tax Forms (But Were Afraid to Ask)

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Many brave Americans overseas attempt to do their own tax returns, and often inadvertently end up learning about tax forms they may not have been filing or filed incorrectly. Unfortunately, many taxpayers who work with paid professionals also have ended up missing forms in their tax returns. The remainder of this article is dedicated to some of the most common tax forms that are generally part of an expat-American tax return. Whether you prepare your own return or work with a tax professional, you should be familiar with these forms.

Common Overseas Tax Forms

Most professional tax preparers will be familiar with these forms, and most consumer tax-preparation software packages will support them:

Form 2555 & 2555- EZ: These forms are for calculating your Foreign Earned Income Exclusion (FEIE) and to calculate your Foreign Housing Exclusion or Deduction. If you meet certain foreign residency requirements, you may be able to exclude up to $99,200 of earned income in 2014 and a portion of your foreign housing expenses from U.S. income tax. Note that this exclusion does not apply to self-employment taxes. If you are self-employed abroad, you are still subject to U.S. Social Security taxes unless you live in one of the 25 countries with which the U.S. has a Social Security Totalization Agreement. The FEIE is generally advantageous to use when income tax rates in the foreign country are lower than in the U.S. and/or your total earned income is below the exclusion threshold.

Form 1116: This is the Foreign Tax Credit form and it is used to claim a credit against your U.S. income tax for income taxes paid in the foreign country. This credit applies both to foreign earned income (wages, self-employment income, etc.) and unearned income (interest, dividends, capital gains, rents, etc.). This is generally the most beneficial form to use for residents of countries with high income tax rates, those with children eligible for the additional child tax credit and those interested in contributing to U.S. retirement plans (traditional and Roth IRAs, SEPs, solo 401(k)s, etc.)

FBAR Form FinCEN 114: This form is independent of the tax return and a separate filing requirement. The FBAR applies to any U.S. person who owns, has beneficial interest or signature authority over foreign financial accounts that exceed $10,000 in the aggregate in value at any time during the year. If you have any foreign bank accounts, this also has to be disclosed on Part III of Schedule B, whether the FBAR is required to be filed or not. FinCEN 114 must be e-filed and cannot be mailed, with the absolute filing deadline on June 30, with no extension possible.

Form 8938: This form, also known as the Fatca form, is used to report Specified Foreign Financial Assets and the income derived from them. There is some overlap with the FinCEN 114 Form (FBAR), but the filing thresholds are higher, and depend on the taxpayer’s residency and marriage status, with different thresholds for the highest value reached during the year and on the last day of the year. These thresholds range from a low of $50,000 to a high of $600,000.

Other Overseas Tax Forms

Not every tax preparer will be familiar with the forms described below. If any of these forms apply to your situation, you will need to make sure that your preparer is qualified to do the work. Many of these forms are quite complex and require special training to prepare. The IRS, for example, estimates that each Form 8621 requires almost 17 hours of record-keeping and more than 14 hours to prepare. These are the forms that are most commonly missed or filed with errors. The list that follows is illustrative and not comprehensive:

If you received a gift or inheritance from a foreign person, even though it will generally not be taxable in the U.S., depending on the amount, you may have to report it in Form 3520. This form is also used to report transactions that you had with foreign trusts. If you are grantor in a foreign trust, you are likely required to file Form 3520-A in addition to form 3520.

If you run your own business in a foreign country, you may have established a company to conduct your business. Depending on the entity’s classification for U.S. tax purposes, which will be a corporation by default or will depend on the classification election made through Form 8832, you may be required to file Form 8858 if the entity is disregarded; Form 5471 if the entity is classified as a corporation; or Form 8865 if classified as a partnership. Transactions between you and your foreign company may have to be reported on Form 926.

If you live in a country with which the U.S. has an income tax convention, you may be entitled to certain treaty benefits with respect to your foreign retirement accounts, re-sourcing of certain U.S. source income to avoid double taxation, taxation of foreign social security, etc. The treaty-based positions taken in your return may have to be disclosed in Form 8833.

If you have a brokerage account or other investments (including some foreign retirement accounts) in a foreign country, these investments may be classified as Passive Foreign Investment Companies or PFICs, which are subject to special tax rules that are generally unfavorable in nature. Most foreign mutual funds and ETFs are classified as PFICS. Each PFIC you own is reported on a separate Form 8621.

Other forms that could also apply to your situation include Form 5173: Transfer Certificate which is issued by the IRS upon the death of an American citizen overseas, and is a discharge form confirming that all taxes had been paid and which is often required by banks and brokerage firms to release funds to the estate; Form 5472 for certain U.S. corporations with 25% foreign ownership and certain foreign corporations engaged in a U.S. trade or business; and Form 720, Quarterly Excise Tax Return, to report and pay excise taxes on certain foreign life insurance premiums.

Common Tax Forms – With Some Overseas Components

The following forms are common for U.S. taxpayers but also have some international elements to be aware of:

1040: Ultimately all of your income (foreign and domestic) should end up on your form 1040. Americans married to non-Americans may be able to us the Head of Household filing status instead of married filing separately. In some cases adding a non-citizen spouse (and their income and assets) to the U.S. tax return can be beneficial. All dependents on the return, must have a U.S. tax ID number.
1040: – Schedule A: Some expenses related to being overseas may be able to be claimed as itemized expenses such as certain foreign taxes, certain moving expenses and travel, mortgage interest, medical and dental expenses etc.
1040: – Schedule B: Part III of Schedule B has information related to foreign trusts and foreign bank accounts. Make sure you check these correctly.
1040: – Schedule C. If you live overseas and are self-employed, you will still have to file a Schedule C. You may be subject to U.S. Social Security though Totalization Agreements may negate the need for paying into U.S. Social Security. You will also generally be able to contribute to a U.S. solo 401(k) or SEP IRA but these may not be tax-deferred in the country where you live and work.

For more information about overseas tax returns, you should check the IRS’s website, which has thousands of pages for your reading pleasure in a section dedicated to International Taxpayers. A good starting point for any new overseas American is Publication 54: Tax Guide for US Citizens and Resident Aliens Abroad.

Wall Street Journal full article here

What Happened Last Week !?