January Quarterly Newsletter - 2021

Highlights of this Newsletter:

  • Celebrating 20 years at LVM - Charles Prudhomme and Linda Crawford

  • IRS Issues New RMD Tables for 2022!

  • LVM Contributions in Honor of our Clients

  • Long-Term Care Insurance vs. Hybrid Life Insurance: Comparison

  • Second Stimulus Package Approved


IRS issues New RMD Tables for 2022!

By Ian Berger, JD IRA Analyst

Good news! You can look forward to somewhat smaller required minimum distributions

(RMDs) from your IRA and company retirement savings plan beginning in 2022. That’s

because, on November 6, the IRS released new life expectancy tables that are used to

calculate RMDs. The new tables are not effective until 2022. RMDs are waived for 2020, and

RMDs for 2021 will be calculated under the current tables.

The IRS revised the current tables, which have been in effect since 2002, to reflect the fact

that Americans are now living longer. Last November, the IRS issued proposed regulations

that were supposed to go into effect for 2021. However, because the final regulations were

issued so late in 2020, the IRS delayed the new tables another year to give custodians and

record keepers enough time to implement them.


There are three life expectancy tables used for RMDs: the Uniform Lifetime Table, the Joint

and Last Survivor Table, and the Single Life Table.

  • The Uniform Lifetime Table is used to calculate lifetime RMDs. If you turn age 70 ½ after 2019, your RMDs generally must begin after age 72.

  • The Joint and Last Survivor Table is used instead of the Uniform Lifetime Table when your spouse is the sole beneficiary and is more than 10 years younger than you.

  • The Single Life Table is used to calculate RMDs for your beneficiaries, but only if they are an “eligible designated beneficiary.” These include: a surviving spouse; a minor child; a chronically ill individual; disabled individual; or someone no more than 10 years younger than you. All other individual beneficiaries who inherit after 2019 are subject to a 10-year payout rule and do not use this table. This table is also used if you die after your “required beginning date” (April 1 after your age 72 year) without naming a living beneficiary. The IRS regulations include a special “reset” provision for calculating RMDs for nonspouse beneficiaries who inherit before January 1, 2022.

Here’s an example of the effect of the new tables. IRA owner Sofia reaches age 72 in 2002

and decides to take her first RMD in 2022. (She could have deferred her first RMD until April

1, 2023, but that would require her to receive two RMDs in 2023 – the 2022 RMD and the

2023 RMD.) Sofia’s IRA was worth $300,000 as of December 31, 2021. Under the old Uniform

Lifetime Table, Sofia’s life expectancy factor would have been 25.6, and her 2022 RMD would

have been $11,719 ($300,000/25.6). Under the new table, her life expectancy factor is 27.4,

and her RMD is $10,949 ($300,000/27.4). That’s a 7% drop.


A smaller RMD means less taxes and more retirement savings you can retain for taxdeferred

growth. Of course, you can always take more than your RMD if you wish. Failing to

take your full RMD can result in a penalty equal to 50% of the amount not taken, although

the IRS will often waive that penalty.


LVM Contributions given in honor of our Clients

We are extremely grateful for our relationship with you and your continued support

for LVM. We were again honored to “pay it forward” with donations to Constance

Brown, Hospice of SW MI, Kalamazoo Gospel Ministries, Kalamazoo Loaves and

Fishes, and Wounded Warriors.


LVM additionally participated in a funding challenge for Lending Hands of MI, an

organization which lends home medical and other related equipment for free to 6

surrounding counties.


LTC Insurance vs. Hybrid Life Insurance: Comparison

An important part of any retirement strategy involves factoring in the potential expenses associated with long-term care. For many years, people have purchased long-term care insurance to help cover some of those costs.


However, over the past decade, other insurance products have become available that combine life insurance with some type of accelerated and/or extended benefits provision for long-term care. A comparison of the general frameworks of each type of insurance could help you decide which option may be better for you.


Note: Some insurers offer combination annuity products that offer long-term care benefits. The focus of this article is on hybrid life insurance compared to traditional long-term care insurance.


Similarities

Hybrid life insurance and traditional long-term care insurance share basic similarities. For instance, both require the applicant for insurance to meet minimum health and cognitive standards in order to get the coverage, both pay claims after the insured incurs long-term care expenses, there is often a waiting, or elimination period before claims are paid, and payments for long-term care are generally received by the insured income-tax free.


Differences

Despite the general similarities, there are differences between hybrid life insurance and traditional long-term care insurance.


Cost. Hybrid life insurance usually costs more than traditional long-term care insurance. Hybrid policies are often paid with a single payment or payments over a few years, usually no more than 10.


Long-term care premiums may increase over time, whereas hybrid policy payments generally do not change.


Life insurance death benefit. A hybrid policy includes a death benefit. Payments for long-term care reduce the death benefit, but the policy often has a minimum death benefit even if long- term care payments exceed the total death benefit amount. So if you don't use the hybrid policy for long-term care, there's still a death benefit that will be paid to your named policy beneficiaries at your death. Long-term care insurance is typically a "use it or lose it" proposition. While some long-term care policies may offer a return of premium option, they're usually very expensive and rarely purchased. With most long-term care insurance, if you don't use the policy for long-term care, nothing is paid at your death and there is no reimbursement of your premiums.


Cash value. Most hybrid policies have a cash- value component. While payments for long-term care are generally received income tax-free, withdrawals from the cash-value of a hybrid policy are treated like any other cash-value withdrawals. If the policy is categorized as a modified endowment contract (MEC), then cash value withdrawals are taxed as last in, first out, meaning any earnings on the cash value are deemed withdrawn first and subject to income taxation. Long-term care insurance has no cash value.


Benefit payments. Long-term care insurance benefit payments are often larger than hybrid policy payments.


Second Stimulus Package Approved

  • A one-time $600 payment to most Americans

  • Extension of the Pandemic Unemployment Assistance andPandemic Emergency Unemployment Compensation programs

  • Extension of the $300 per week in additional unemployment benefits through mid-March

  • $284 billion for the Paycheck Protection Program (PPP) and additional small business fundingworth $35 billion

  • Extension of the federal eviction moratorium through the end of January plus $25 billion for a rental assistance fund

  • Up to $68 billion for vaccine distribution, vaccine administration (making it free), and COVID testing/contact tracing

  • A $13 billionincrease to SNAP (foods stamps,food banks, etc.)

  • $10 billion for childcare assistance

  • $10 billion for the USPS

  • $45 billion for transportation: highways,airlines, transit systems

  • $7 billion for broadband internet for students

  • $82 billion for schools (K-12 and colleges)

  • $13 billion for agriculture


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