Effective January 1, 2020, your employees must withdraw at least the minimum amount from their employer-sponsored 401(k) and IRAs (Individual Retirement Accounts) by age 72. The required minimum distribution (RMD) age was formerly 70½. The RMD amount is determined by applying a life expectancy factor set by the IRS to the employees’ account balance at the end of the previous year.
Account-holders who are taking an RMD for the first time may wait until April 1 of the year after the year they turn age 72. For 401(k) plans, they can wait until 72 or until the year they retire, if they don’t have a five percent or more ownership stake in their employer. After that, account holders’ RMD for a given year must be withdrawn by Dec. 31, either in a lump sum or in installments.
If they decide to delay taking their first RMD until the next year, they’ll have to take two minimum distributions during that calendar year. This can put them in a higher tax bracket for that year, which may significantly increase their taxes. They also could have to pay a 50 percent excise tax on the amount that was not withdrawn. That is 50 percent of the difference between the required distribution and the actual distribution. There also is a penalty for not withdrawing the full amount.
Employees can find out how much of their RMD will be taxable by visiting the IRS website.
The RMD deadlines apply even if the account owner dies. The beneficiaries must take the regularly required minimum distribution the year in which the account holder dies. The following year, the required minimum distribution will depend on the age of the beneficiary.
Remember, the more your employees know about their 401(k) accounts, the better informed they’ll be when making decisions about how much to save.
Talk to your local broker about how best to communicate this information.
Of the two main types of life insurance, permanent and term, only permanent is usually a significant part of a divorce settlement.
Permanent life insurance — whether whole life or universal life — provides coverage for the lifetime of the insured as long as premiums are paid, though Universal allows greater flexibility in terms of payments and death benefits. The biggest distinction is that with whole life, savings grow at a guaranteed rate; with Universal life insurance, savings vary depending on the premium structure and market performance.
During divorce proceedings, attorneys and the court will investigate whether the couple has permanent or term life insurance, and the extent to which the insurance is needed as part of the settlement.
Term Insurance
Term life, which lasts for a set period, has lower premiums than permanent, but no cash value. Because it has no cash value, it’s not usually considered an asset when dividing property during the divorce process.
However, there is an exception. In some states, if one spouse is ordered by the court to provide life insurance, and that person is uninsurable but has a term life insurance policy, the existing policy may be considered a marital asset.
Beneficiaries
When a life insurance policy is considered an asset in the divorce, the divorce will not automatically change the policy owner, the insured, or the policy beneficiary. However, the final decree may include language that invalidates a spouse as a beneficiary under a policy or stipulates that the parties take specified actions with respect to obtaining or changing existing life insurance policies. For example, the final decree can also specify that joint or survivorship policies be split into separate policies for each spouse.
Unless otherwise specified by the court in the final decree, divorcing couples can make changes as to who the beneficiaries are. For example, if a husband owns a life insurance policy that insures him and lists his soon-to-be ex-wife as the beneficiary, the husband can change the beneficiary. Again, however, the divorce agreement may say otherwise. The judge might have agreed to constrain the husband from changing the beneficiary if the husband owes the spouse alimony or child support.
The cash value of a permanent life policy will often be part of the settlement. But if it’s not part of the settlement, it may also be a source of funds to help with divorce-related expenses.
Ex-spouses May Be Required to Purchase Insurance
Divorcing couples who don’t have permanent life insurance might want it stipulated that the ex-spouse purchase it to protect alimony payments, child support payments and pension or retirement funds. This is one way to ensure that those financial obligations are met even if the breadwinner dies.
If a divorce decree is issued requiring court-ordered life insurance, the ex-spouse, who is paying for the policy, usually will receive a deadline. If so, it’s best to apply for the insurance immediately because it can take four to six weeks to get a signed policy.
In these situations, both ex-spouses need to work together along with their attorneys to set up the policy to decide who will be the owner; the term, the coverage amount and who will pay the premiums. Attaching riders to the policy may also be considered, such as adding a long-term care rider to the policy to pay for in-home or nursing home care.
Once the details are finalized and the policy is obtained, a signed copy of the application must be provided to the court as proof of compliance.
For help understanding how life insurance can be a resource for financial planning and special situations, please contact us.
On January 31, 2020 the Centers for Medicare & Medicaid Services (CMS) announced a one-year extension to the transition policy (originally announced November 14, 2013 and extended six times since) for individual and small group health plans that allows issuers to continue policies that do not meet ACA standards. The transition policy has been extended to policy years beginning on or before October 1, 2021, provided that all policies end by January 1, 2022. This means individuals and small businesses may be able to keep their non-ACA compliant coverage through the end of 2021, depending on the policy year. Carriers may have the option to implement policy years that are shorter than 12 months or allow early renewals with a January 1, 2021 start date in order to take full advantage of the extension.
Background
The Affordable Care Act (ACA) includes key reforms that create new coverage standards for health insurance policies. For example, the ACA imposes modified community rating standards and requires individual and small group policies to cover a comprehensive set of benefits.
Millions of Americans received notices in late 2013 informing them that their health insurance plans were being canceled because they did not comply with the ACA’s reforms. Responding to pressure from consumers and Congress, on Nov. 14, 2013, President Obama announced a transition relief policy for 2014 for non-grandfathered coverage in the small group and individual health insurance markets. If permitted by their states, the transition policy gives health insurance issuers the option of renewing current policies for current enrollees without adopting all of the ACA’s market reforms.
Transition Relief Policy
Under the original transitional policy, health insurance coverage in the individual or small group market that was renewed for a policy year starting between Jan. 1, 2014, and Oct. 1, 2014 (and associated group health plans of small businesses), will not be out of compliance with specified ACA reforms. These plans are referred to as “grandmothered” plans.
To qualify for the transition relief, issuers must send a notice to all individuals and small businesses that received a cancellation or termination notice with respect to the coverage (or to all individuals and small businesses that would otherwise receive a cancellation or termination notice with respect to the coverage).
On January 31, 2020 the Centers for Medicare & Medicaid Services (CMS) announced a one-year extension to the transition policy (originally announced November 14, 2013 and extended six times since) for individual and small group health plans that allows issuers to continue policies that do not meet ACA standards. The transition policy has been extended to policy years beginning on or before October 1, 2021, provided that all policies end by January 1, 2022. This means individuals and small businesses may be able to keep their non-ACA compliant coverage through the end of 2021, depending on the policy year. Carriers may have the option to implement policy years that are shorter than 12 months or allow early renewals with a January 1, 2021 start date in order to take full advantage of the extension.
Background
The Affordable Care Act (ACA) includes key reforms that create new coverage standards for health insurance policies. For example, the ACA imposes modified community rating standards and requires individual and small group policies to cover a comprehensive set of benefits.
Millions of Americans received notices in late 2013 informing them that their health insurance plans were being canceled because they did not comply with the ACA’s reforms. Responding to pressure from consumers and Congress, on Nov. 14, 2013, President Obama announced a transition relief policy for 2014 for non-grandfathered coverage in the small group and individual health insurance markets. If permitted by their states, the transition policy gives health insurance issuers the option of renewing current policies for current enrollees without adopting all of the ACA’s market reforms.
Transition Relief Policy
Under the original transitional policy, health insurance coverage in the individual or small group market that was renewed for a policy year starting between Jan. 1, 2014, and Oct. 1, 2014 (and associated group health plans of small businesses), will not be out of compliance with specified ACA reforms. These plans are referred to as “grandmothered” plans.
To qualify for the transition relief, issuers must send a notice to all individuals and small businesses that received a cancellation or termination notice with respect to the coverage (or to all individuals and small businesses that would otherwise receive a cancellation or termination notice with respect to the coverage).
The transition relief only applies with respect to individuals and small businesses with coverage that was in effect since 2014. It does not apply with respect to individuals and small businesses that obtain new coverage after 2014. All new plans must comply with the full set of ACA reforms.
One-year Extension
According to CMS, the extension will ensure that consumers have multiple health insurance coverage options and states continue to have flexibility in their markets. Also, like the original transition relief, issuers that renew coverage under the extended transition relief must, for each policy year, provide a notice to affected individuals and small businesses.
Under the transition relief extension, at the option of the states, issuers that have issued policies under the transitional relief in 2014 may renew these policies at any time through October 1, 2021 and affected individuals and small businesses may choose to re-enroll in the coverage through October 1, 2021. Policies that are renewed under the extended transition relief are not considered to be out of compliance with the following ACA reforms:
About the Authors. This alert was prepared for Alera Group by Marathas Barrow Weatherhead Lent LLP, a national law firm with recognized experts on the Affordable Care Act. Contact Stacy Barrow or Alyssa Oligmueller at sbarrow@marbarlaw.com or aoligmueller@marbarlaw.com.
The information provided in this alert is not, is not intended to be, and shall not be construed to be, either the provision of legal advice or an offer to provide legal services, nor does it necessarily reflect the opinions of the agency, our lawyers or our clients. This is not legal advice. No client-lawyer relationship between you and our lawyers is or may be created by your use of this information. Rather, the content is intended as a general overview of the subject matter covered. This agency and Marathas Barrow Weatherhead Lent LLP are not obligated to provide updates on the information presented herein. Those reading this alert are encouraged to seek direct counsel on legal questions.
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