Category Archives: Retirement Planning

The Perks of Working Past Traditional Retirement Age

A large number of Americans intend to keep working past retirement age. For many, their reasons are financial. Some have a high level of debt while others are afraid if they retire too soon, they will run out of money.

Working longer offers several financial benefits. Those who put off retirement are able to:

  • Accrue a higher Social Security benefit
  • Grow a higher pension benefit
  • Have more time to save money and permit investments to grow
  • Utilize company-paid insurance benefits

In addition to financial benefits, there are cognitive, physical and social advantages to working longer. Studies have found that older Americans, who tend to work longer than people in European countries, score higher than those citizens on memory tests. The research correlates continued mental stimulation provided through work with retaining mental acuity longer than those who retire.

Working outside the home also exposes older folks to a larger social network than some retirees might experience. As we get older, our social networks tend to narrow. Most people see fewer people after retiring and must make a concerted effort in order to engage in conversation and activities with a wide range of people on a daily basis. Maintaining a job past traditional retirement age can keep us socially engaged longer. Scientists say that regular social contact contributes to better health and a positive sense of well-being as we grow older.

Some people prefer to keep working because they are self-described workaholics. While we tend to associate any type of “-aholic” with negative connotations, recent research has found that an addiction to working long hours can yield positive outcomes. For one, American businesses generally reward workaholic behavior with promotions and higher pay, so there is a financial benefit. Secondly, a recent study correlated health benefits as well. The research discovered that workaholics who love their job have no more risk of developing health conditions (e.g., high blood pressure, high blood sugar, abnormal cholesterol, excess waistline fat) than the average employee.

Unfortunately, if work is causing undue stress and health problems, this will likely cost more money for treatment during retirement. In this case, if you don’t love your job it could be worth considering retiring—even if that means living on less income. At least it would give you the opportunity to pursue a daily regimen of healthy habits and interesting hobbies—which might help ward off expensive medical bills and provide a higher quality of life.

When weighing the benefits of retiring versus working longer, don’t rule out opportunities for income other than a full-time job. Consider taking on a less stressful part-time job that will allow you to explore some of your interests. For example, if you like carpentry or gardening, consider applying for a position at Lowes, Home Depot or Ace Hardware. If you enjoy crafts or sewing, consider selling wares at a local market or starting your own tailoring and alterations service. If you like being around animals, consider offering a pet sitting service.

Working longer doesn’t necessarily mean working longer at the same job. You can enjoy many of the same perks—financial, mental, physical and social—by simply switching to a less stressful type of work that you enjoy more.

Funding Options For Long Term Care Expenses

The longer people live, the greater the likelihood they will require assistance in old age. And today, people are living longer than ever. As if providing for one’s own retirement isn’t hard enough, now we must factor in the cost of providing long-term care.

Health insurance — including Medicare — is designed to cover only expenses related to acute care, such as a trip to the hospital. It does not cover the cost of assistance over a long period of time — and certainly not for the remainder of your life. Unless you qualify for government benefits or purchase some form of long-term care insurance, this form of assistance must be paid for out of your retirement income.

In addition to whatever saving and investment vehicles you are using to accumulate a retirement nest egg, it’s also important to consider what options are currently available to help finance long-term care.

Medicaid and Medicare

Medicaid offers benefits for long-term care, but generally it requires that beneficiaries use their own assets to pay for care until they are down to their last $2,000. Certain assets are excluded such as home equity in your primary residence of up to $572,000 – $858,000, depending on which state you live in. Medicaid coverage is available only for traditional nursing homes, but not every facility accepts Medicaid patients.

Historically, Medicare offered coverage for nursing home care only up to 100 days after a hospital stay. However, in March of 2018 the Centers for Medicare and Medicaid Services (CMS) announced that, starting in 2019, Medicare Advantage (MA) plans would be permitted to offer coverage for certain long-term care services. The CMS has left it up to individual MA insurers to determine specific coverage options, but suggested that it might include home aides to help with daily living activities as deemed medically appropriate by a licensed health care provider.

Be aware that only Medicare Advantage plans, not original Medicare, are able to implement long-term care coverage under this new rule.

Veteran’s Benefits

If you are a veteran who served at least 90 days during a time of war, you might qualify for long-term care benefits through the Veterans Aid and Attendance program. Eligible applicants may not exceed certain income and asset limit requirements. The benefit offers as much as $1,830 per month to a qualifying veteran and as much as $1,176 for a surviving spouse specifically for long-term care assistance.

The Housebound Benefit is another long-term coverage option for veterans with a permanent disability that leaves them mostly shut-in at home, but who do not need daily assistance. The benefit is paid as an additional stipend to a veteran’s monthly pension.

Long-Term Care Insurance

Traditional long-term care insurance (LTCI) works much the way we use auto insurance. In other words, you pay a premium whether you end up using the coverage or not. The purpose of this insurance is to help protect a household’s assets. Because long-term care is expensive, it can use up an entire nest egg, leaving nothing for the other spouse to live on.

Long-term care insurance generally pays for daily assistance resulting from a disability or chronic illness from which the patient is not expected to fully recover. The policy may pay out a fixed sum to the policy owner for home health aides, or a fixed per diem paid directly to a nursing home or assisted living facility. Generally, both indemnity and reimbursement policies have contractual limits.

Note that many LTCI policies require a waiting period (e.g. 90 days) before coverage kicks in, and there is generally a limit to how long coverage lasts (e.g. three years).

Hybrid Insurance Options

These days, different types of life insurance policies now include long-term care coverage as an optional rider or as part of the policy. For example, a long-term care rider may be added to a whole or universal life insurance policy for an additional fee. Or, a policy might offer terminal illness benefits, which pay out a portion of the policy’s death benefit if the policyowner is diagnosed with a terminal illness or cognitive impairment.

Annuity Options

Some annuity contracts now allow distributions for long-term care expenses. The Long-Term Care Doubler or Home Health Care Doubler allows the lifetime income benefit to be doubled and paid out for a limited time or for the duration of the long-term care stay. Also note that these annuity-based long-term care benefits are distributed on a tax-free basis.

Top Tax Developments of 2014 with Impact on 2015

Michael Blitstein, CJBS

Michael Blitstein, CJBS

by Michael W. Blitstein, CPA

2014 was a notable year for tax developments on a number of fronts. Selecting the top tax developments for 2014 requires judgment calls based upon uniqueness, taxpayers affected, and forward looking impact on 2015 and beyond. With respect to David Letterman, the following list of 2014 tax developments reflects this prioritization in no particular order.

Passage of the Extenders Package
2014 was not a year for major tax legislation in Congress. In fact, Congress even failed to pass its usual two-year extenders package, instead settling on a one-year retroactive extension to January 1, 2014. As one senator put it, “This tax bill doesn’t have the shelf life of a carton of eggs,” referring to the fact that the 50-plus extenders provisions expired again on January 1, 2015. Instead, it has been left to the 114th Congress to debate the extension of these tax breaks in 2015 and beyond, and for taxpayers to guess what expenses in 2015 will again be entitled to a tax break.

Affordable Care Act
In many ways, 2014 was a transition year for the Affordable Care Act. One of the most far reaching requirements, known as the “individual mandate”, took effect on January 1, 2014. Unless exempt, individuals who fail to carry minimum essential health coverage will make a shared responsibility payment in 2015. Another key provision, the “employer mandate”, was further delayed to 2015. Employer reporting for 2014 is voluntary. The IRS also developed new forms for reporting many new requirements.

Repair Regulations
In 2014, the IRS finished issuing the necessary guidance on the treatment of costs for tangible property under the sweeping “repair” regulations. The most important development was the issuance of final regulations on the treatment of dispositions of tangible property, including the identification of assets, the treatment of dispositions, and the computation of gain and loss. The complexity of the repair regulations has not gone unnoticed by many tax professionals, who have asked the IRS to simplify some of the provisions.

IRS Operations
IRS predicted a complex and challenging 2015 filing season due to cuts in the Service’s funding. This dictates the Service having to do more with less because of budget cuts. The IRS is funded $1.5 billion below the amount requested. IRS could face another round of budget cuts under the new Republican controlled Congress for 2016.

Net Investment Income Tax
Many higher income individuals were surprised to learn the full impact of the net investment income tax (“NII”) on their overall tax liability during the 2014 filing season when their 2013 returns were filed. Starting in 2013, taxpayers with qualifying income have been liable for the 3.8 percent net investment income tax. Recent run ups in the financial markets, combined with the fact that the thresholds are not adjusted for inflation, have increased the need to implement strategies that can avoid or minimize the NII tax.

Retirement Planning
A number of changes were made during 2014 affecting IRAs and other qualified plans, which cumulatively rise to the level of a “top tax development” for 2014:

  • Distributions from a qualified retirement plan account are now able to have the taxable and non-taxable portions of the distribution directed to separate accounts.
  • 401(k) plans can now offer deferred annuities through target date funds.
  • A Tax Court ruling held that a taxpayer is limited to one 60-day rollover per year for all IRA accounts rather than one 60-day rollover per year for each IRA account. The IRS stated that the new interpretation of the rollover rules would be applied to rollover distributions received on or after January 1, 2015.
  • A 2014 Supreme Court decision found that inherited IRA accounts were not retirement assets and therefore not subject to creditor protection under the Bankruptcy Code.
  • The IRS announced the 2015 cost-of-living adjustments for qualified plans. Many retirement plan contribution and benefit limits increase slightly in 2015.

Identity Theft
Although clearly not confined to the area of Federal tax, identity theft has been a major issue for both the IRS and taxpayers. In 2014, the IRS put new filters in place and took other measures to curb tax related identity theft. The agency also worked with software developers, financial institutions and the prepaid debit card industry to combat identity theft.

Tax Reform
Although 2014 was clearly not the year for tax reform, the foundations for serious tax reform discussions were laid in 2013 and 2014. Looking ahead to 2015 and beyond, it is possible that Congress will complete some form of tax reform in 2015 or 2016.  The major difference of opinion, however, surrounds whether or not the reform would only address corporate tax provisions or also include individual provisions. Many leaders have called for tackling comprehensive tax reform on both the business and individual side. The Senate Finance Committee expects to hold tax reform hearings in 2015.

So what does this all mean? To continue the theme from the last few years, the tax world is ever evolving with increased complexity. Both current and long term planning is as essential as ever. Other 2014 developments may prove more significant to your particular situation.  Be sure to seek advice from a dental specific tax accountant to discuss your unique circumstances.

Michael W. Blitstein, CPA is a partner with the firm of CJBS, LLC, in Northbrook, Illinois. For more than 30 years, Michael has worked closely with the dental community and is intimately familiar with the unique professional and regulatory challenges of creating, running and maintaining a successful dental practice. Michael advises his clients on tax, business and retirement planning, developing short and long-term strategic plans designed to achieve success for dental practice principals and their businesses.

He can be reached at

Navigating the Tax Obstacles of Investing in 2014

Michael Blitstein, CJBS

Michael Blitstein, CJBS

by Michael W. Blitstein, CPA

It’s never been easy to navigate the various tax consequences of buying and selling securities and investments. Among the many obstacles investors need to consider in 2014 is the relatively new net investment income tax (“NIIT”). This 3.8% tax may apply to your net investment income if your income exceeds certain levels. And the tax can show up when you least expect it – for example, passive activity and qualified dividend income are subject to the tax. Some other tax issues related to investing should also be considered.

Capital Gains Tax and Timing
Although time, not timing, is generally the key to long-term investment success, timing can have a dramatic impact on the tax consequences of investment activities. Your long-term capital gains rate might be as much as 20 percentage points lower than your ordinary income rate. The long-term gains rate applies to investments held for more than 12 months. The applicable rate depends on your income level and the type of asset sold. Holding on to an investment until you’ve owned it more than a year may help substantially cut tax on any gain.

Remember, appreciating investments that don’t generate current income aren’t taxed until sold. Deferring tax and perhaps allowing you to time the sale to your advantage can help, such as in a year when you have capital losses to absorb the capital gain. If you’ve already recognized some gains during the year and want to reduce your 2014 tax liability, consider selling unrealized loss positions before the end of the year.

Loss Carryovers
If net losses exceed net gains, you can deduct only $3,000 ($1,500 for married filing separately) of the net losses per year against ordinary income. You can carry forward excess losses indefinitely. Loss carryovers can be a powerful tax-saving tool in future years if you have an investment portfolio, real estate holdings or a practice that might generate future capital gains. Also remember that capital gain distributions from mutual funds can absorb capital losses.

Income Investments
Qualified dividends are taxed at the favorable long-term capital gains tax rate rather than the higher, ordinary income tax rate. Qualified dividends are, however, included in investment income under the 3.8% NIIT.

Interest income generally is taxed at ordinary income rates, which are now as high as 39.6%. Stocks that pay qualified dividends may be more attractive tax wise than other income investments, such as CD’s, money market accounts and bonds. Note some dividends are subject to ordinary income rates.

Keep in mind that state and municipal bonds usually pay a lower interest rate, but their rate of return may be higher than the after tax rate of return for a taxable investment, depending on your tax rate. Be aware certain tax-exempt interest can trigger or increase alternative minimum tax.

Mutual Funds
Investing in mutual funds is an easy way to diversify your portfolio. But beware of the tax ramifications. First, mutual funds with high turnover rates can create income that’s taxed at ordinary income rates. Choosing funds that provide primarily long-term capital gains can save you more tax dollars.

Second, earnings on mutual funds are typically reinvested, and unless you keep track of these additions and increase your basis accordingly, you may report more gain than required when you sell the fund.

Additionally, buying equity mutual fund shares later in the year can be costly tax wise.  Such funds often declare a large capital gains distribution at year-end. If you own shares on the distribution record date, you’ll be taxed on the full distribution amount even if it includes significant gains realized by the fund before you owned the shares. And you’ll pay tax on those gains in the current year, even if you reinvest the distribution.

Paying Attention to Details
If you don’t pay attention to details, the tax consequences of a sale may be different from what you expect. For example, the trade date, not the settlement date, of publicly traded securities determines the year in which you recognize the gain or loss. And if you bought the same security at different times and prices and want to sell the high tax basis shares to reduce gain or increase a loss to offset other gains, be sure to specifically identify which block of shares is being sold.

Passive Activities
If you’ve invested in a trade or business in which you don’t materially participate, remember the passive activity rules. Why? Passive activity income may be subject to the 3.8% NIIT, and passive activity losses generally are deductible only against income from other passive activities. Disallowed losses can be carried forward to future years, subject to the same limitations.

The Internal Revenue tax code is ever evolving and recent tax law changes have provided increased complexity. Tax obstacles related to investing is just one reason why it’s important to plan ahead and consider taking advantage of strategies available to you. You should always consult with your tax adviser to determine the best course of action.

Michael W. Blitstein, CPA is a partner with the firm of CJBS, LLC, in Northbrook, Illinois. For more than 30 years, Michael has worked closely with the dental community and is intimately familiar with the unique professional and regulatory challenges of creating, running and maintaining a successful dental practice. Michael advises his clients on tax, business and retirement planning, developing short and long-term strategic plans designed to achieve success for dental practice principals and their businesses.

He can be reached at

Retirement Plan Limitations for 2012…

by Michael W. Blitstein, CPA 

Internal Revenue Service has announced the following limitations for 2012 retirement plans:

Employee Deferrals:

IRA account – 100% of earned income up to $5,000; age 50 and older catch up $1,000
SIMPLE – 100% of earned income up to $11,500; age 50 and older catch up $2,500
401(k) – $17,000; age 50 and older catch up $5,500
457 Plan – $17,000; age 50 and older catch up $5,500

Defined Contribution Plan
The maximum annual contribution for a plan year ending in 2012 is the lesser of 100% of compensation or $50,000.  If a 401(k) contribution is used, those age 50 and older may reach $55,500.

Defined Benefit Plan
The maximum annual benefit for plan years ending in 2012 is the lesser of 100% of average annual compensation, or $200,000.

Compensation to be used for retirement plan purposes for plan years beginning in 2012 is $250,000.

A highly compensated employee is one earning $115,000 or more for plan years beginning in 2012. The social security taxable wage base is $110,100.

CJBS, LLC is a Chicago based firm that assists its clients with a wide range of accounting and financial issues, protecting and expanding the value of mid-size companies. E-mail me at if you have any questions about this posting or if I may be of assistance in any way.

FUTA surtax is no longer in effect

by Matthew Bergman, CPA

Beginning July 1, 2011, the 0.2% Federal unemployment tax (FUTA) surtax is no longer in effect. Thus, the FUTA tax rate, before consideration of state unemployment tax credits, is now 6.0%.


Under Code Sec. 3301(1), the 0.2% FUTA surtax expired on June 30, 2011. The surtax was part of the 6.2% gross unemployment tax rate (before state credit) that employers paid on the first $7,000 of wages paid annually to each employee (6% permanent tax rate, 0.2% temporary surtax). The surtax has been in effect in every year since 1976, when it was enacted by Congress on a temporary basis. Since legislation hasn’t been enacted to extend the surtax, the FUTA tax rate, before consideration of state unemployment tax credits, now drops to 6.0%, effective July 1, 2011.

So what does this mean for employers?

As IRS noted on its June 2, 2011 payroll industry conference call, employers need to separately track FUTA taxable wages paid before July 1, 2011 and FUTA taxable wages paid after June 30, 2011 since the FUTA tax rates are different during those two periods. Employers whose FUTA tax is more than $500 for the calendar year need to make quarterly FUTA deposits. The next quarterly payment is due on August 1, 2011, but that payment is based on taxable wages earned through June 30, 2011, so it will be computed using the 6.2% FUTA tax rate. However, the payment after that is due on October 31, 2011, and it will be computed using the 6.0% FUTA tax rate if legislation is not enacted to retroactively reinstate the FUTA surtax beginning July 1, 2011.

IRS has indicated it would have some mechanism in place under which an employer would not be assessed deposit penalties if it computed its unemployment tax deposits at a 6.0% rate, and legislation was enacted to retroactively reinstate the surtax.  IRS is working on revising Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return, to take into account the elimination of the surtax. That return must be filed in January 2012.

FUTA Tax Rate Change Effective July 1, 2011

by Matthew Bergman, CPA

The effective tax rate for the Federal Employment Taxes (“FUTA”) was reduced from .8% (.008) to .6% (.006) on July 1, 2011. Congress has announced that the FUTA .2% surcharge, first enacted in 1977, will not be extended after June 30, 2011. Employers have been required to pay a flat rate of .8% on the first $7,000.00 of each employee’s annual wages for FUTA.

The IRS is currently revising Form 940 (Employer’s Annual Federal Unemployment (FUTA) Tax Return) to accommodate the two different FUTA rates for calendar year 2011.

Newly-released information return for “one-participant” plans reflects changes

by Matthew Bergman, CPA

The IRS has released the 2010 version of Form 5500-EZ, Annual Return of One-Participant (Owners and Their Spouses) Retirement Plan, which some plans must file by July 31, 2011. The new form reflects a new type of pension plan that first became available in 2010. It also reflects some changed administrative practices. While they generally were first implemented last year, they are worth noting for plans first having to file Form 5500-EZ for 2010.

Purpose of Form.

Form 5500-EZ is used by one-participant plans that are not subject to the requirements of section 104(a) of the Employee Retirement Income Security Act of 1974 (ERISA) and that are not eligible or choose not to file Form 5500-SF electronically to satisfy certain annual reporting and filing obligations imposed by the Code.

The instructions stress that a one-participant plan (see below) cannot file an annual return on Form 5500, Annual Return/Report of Employee Benefit Plan, regardless of whether the plan was previously required to file an annual return on Form 5500. Therefore, every one-participant plan required to file an annual return must file paper Form 5500-EZ with IRS or choose, if eligible, to electronically file Form 5500-SF (Short Form Annual Return/Report of Small Employee Benefit Plan) using the EFAST2 Filing System (an all-electronic system designed by the Department of Labor, IRS, and Pension Benefit Guaranty Corporation to simplify and expedite the submission, receipt, and processing of Forms 5500 and 5500-SF).

Who Must File Form 5500-EZ.

Form 5500-EZ must be filed for a retirement plan if:

… it is a one-participant plan that is required to file an annual return and the taxpayer is not eligible or chooses not to file the annual return electronically on Form 5500-SF; or

… it is a foreign plan that is required to file an annual return.

A one-participant plan is a retirement plan other than an Employee Stock Ownership Plan (ESOP), which:

… covers only the taxpayer (or the taxpayer and his spouse) and the taxpayer (or the taxpayer and his spouse) owns the entire business (which may be incorporated or unincorporated); or

… covers only one or more partners (or partners and their spouses) in a business partnership; and

… does not provide benefits for anyone except the taxpayer (or the taxpayer and his spouse) or one or more partners (or partners and their spouses).

Who May Not Have to File Form 5500-EZ.

Form 5500-EZ does not have to be filed for the 2010 plan year for a one-participant plan if the total of the plan’s assets and the assets of all other one-participant plans maintained by the employer at the end of the 2010 plan year does not exceed $250,000, unless 2010 is the final plan year of the plan. If a plan meets all the requirements for filing Form 5500-EZ and its total assets exceed $250,000 at the end of the 2010 plan year, Form 5500-EZ must be filed for each of the employer’s one-participant plans including those with less than $250,000 in assets for the 2010 plan year.

EFAST2 Filing System.

One-participant plans may satisfy their filing obligation by filing Form 5500-SF electronically under EFAST2 in place of Form 5500-EZ (on paper), provided that the plan covered fewer than 100 participants at the beginning of the plan year. One-participant plans that covered 100 or more participants at the beginning of the plan year are not eligible to file Form 5500-SF, and must file Form 5500-EZ.

Final Plan Year.

All one-participant plans should file the Form 5500-EZ for their final plan year indicating that all assets have been distributed. The final plan year is the year in which distribution of all plan assets is completed.

Filing Due Date.

Form 5500-EZ must be filed by the last day of the seventh month following the end of the plan year (e.g., normally July 31 for calendar year plans but Aug. 1, 2011 for 2010 calendar years plans because July 31, 2011 falls on a Sunday) unless an extension is granted. A one-time extension to file Form 5500-EZ of up to 2 1/2 months may be obtained by filing Form 5558.

One-participant plans automatically receive an extension of time to file Form 5500-EZ (without filing a Form 5558) if the following conditions are met:

… the plan year and the employer’s tax year are the same;

… the employer has been granted an extension to file its federal income tax return to a date later than the normal due date for filing the Form 5500-EZ; and

… a copy of the application for extension of time to file the federal income tax return is retained with the plan’s records..

This exception gives an extension to the extended due date for filing the employer’s income tax return.