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The Backdoor Roth IRA

A move that high earners can make in pursuit of tax-free retirement income.

Does your high income stop you from contributing to a Roth IRA? It does not necessarily prohibit you from having one. You may be able to create a backdoor Roth IRA and give yourself the potential for a tax-free income stream in retirement.

If you think you will be in a high tax bracket when you retire, a tax-free income stream may be just what you want. The backdoor Roth IRA is a maneuver you can make in pursuit of that goal – a perfectly legal workaround, its legitimacy further affirmed by language in the Tax Cuts & Jobs Act of 2017.1

You establish a backdoor Roth IRA in two steps. The first step: make a non-deductible contribution to a traditional IRA. (In other words, you contribute after-tax dollars to it, as you would to a Roth retirement account.)1

The second step: convert that traditional IRA to a Roth IRA or transfer the traditional IRA balance to a Roth. A trustee-to-trustee transfer may be the easiest way to do this – the funds simply move from the financial institution serving as custodian of the traditional IRA to the one serving as custodian of the Roth IRA. (The destination Roth IRA can even be a Roth IRA you used to contribute to when your income was lower.) Subsequently, you report the conversion to the Internal Revenue Service using Form 8606.1,2

When you have owned your Roth IRA for five years and are 59½ or older, you can withdraw its earnings, tax free. You may not be able to make contributions to your Roth IRA because of your income level, but you will never have to draw the account down because original owners of Roth IRAs never have to make mandatory withdrawals from their accounts by a certain age (unlike original owners of traditional IRAs).1,3

You may be wondering: why would any pre-retiree dismiss this chance to go Roth? It comes down to one word: taxes.

The amount of the conversion is subject to income tax. If you are funding a brand-new traditional IRA with several thousand dollars and converting that relatively small balance to a Roth, the tax hit may be minor, even non-existent (as you will soon see). If you have a large traditional IRA and convert that account to a Roth, the increase in your taxable income may send you into a higher tax bracket in the year of the conversion.2

From a pure tax standpoint, it may make sense to start small when you create a backdoor IRA and begin the process with a new traditional IRA funded entirely with non-deductible contributions. If you go that route, the Roth conversion is tax free, because you have already paid taxes on the money involved.1

The takeaway in all this? When considering a backdoor IRA, evaluate the taxes you might pay today versus the tax benefits you might realize tomorrow.

The taxes on the conversion amount, incidentally, are calculated pro rata – proportionately in respect to the original, traditional IRA’s percentage of pre-tax contributions and earnings. If you are converting multiple traditional IRA balances into a backdoor Roth – which you can do – you must take these percentages into account.1

Three footnotes are worth remembering. One, a backdoor Roth IRA must be created before you reach age 70½ (the age of mandatory traditional IRA withdrawals). Two, you cannot make a backdoor IRA move without earned income because you need to earn income to make a non-deductible contribution to a traditional IRA. Three, joint filers can each make non-deductible contributions to a traditional IRA pursuant to a Roth conversion, even if one spouse does not work; in that case, the working spouse can cover the non-deductible traditional IRA contribution for the non-working spouse (who has to be younger than age 70½).1

A backdoor Roth IRA might be a real plus for your retirement. If it frustrates you that you cannot contribute to a Roth IRA because of your income, explore this possibility with insight from your financial or tax professional.

Traditional IRA account owners should consider the tax ramifications, age and income restrictions in regards to executing a conversion from a Traditional IRA to a Roth IRA. The converted amount is generally subject to income taxation. The

Roth IRA offers tax deferral on any earnings in the account. Withdrawals from the account may be tax free, as long as they are

considered qualified. Limitations and restrictions may apply. Withdrawals prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Future tax laws can change at any time and may impact the benefits of Roth IRAs. Their tax treatment may change.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.
1 – investors.com/etfs-and-funds/retirement/backdoor-roth-ira-tax-free-retirement-income-legal-loophole/ [4/19/18]
2 – investopedia.com/retirement/too-rich-roth-do/ [1/29/18]
3 – irs.gov/retirement-plans/retirement-plans-faqs-regarding-required-minimum-distributions [11/16/17]

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The A, B, C, & D of Medicare

Breaking down the basics & what each part covers.

Whether your 65th birthday is on the horizon or decades away, you should understand the parts of Medicare – what they cover and where they come from.

Parts A & B: Original Medicare. America created a national health insurance program for seniors in 1965 with two components. Part A is hospital insurance. It provides coverage for inpatient stays at medical facilities. It can also help cover the costs of hospice care, home health care, and nursing home care – but not for long and only under certain parameters.1

Seniors are frequently warned that Medicare will only pay for a maximum of 100 days of nursing home care (provided certain conditions are met). Part A is the part that does so. Under current rules, you pay $0 for days 1-20 of skilled nursing facility (SNF) care under Part A. During days 21-100, a $167.50 daily coinsurance payment may be required of you.2

If you stop receiving SNF care for more than 30 days, you need a new 3-day hospital stay to qualify for further nursing home care under Part A. If you can go 60 days in a row without SNF care, the clock resets: you are once again eligible for up to 100 days of SNF benefits via Part A.2

Part B is medical insurance and can help pick up some of the tab for physical therapy, physician services, expenses for durable medical equipment (scooters, wheelchairs), and other medical services such as lab tests and varieties of health screenings.1

Part B isn’t free. You pay monthly premiums to get it and a yearly deductible (plus 20% of costs). The premiums vary according to the Medicare recipient’s income level. The standard monthly premium amount is $134 this year, but some people who receive Social Security benefits are paying lower Part B premiums (on average, $130). The current yearly deductible is $183. (Some people automatically receive Part B coverage, but others must sign up for it.)3

Part C: Medicare Advantage plans. Insurance companies offer these Medicare-approved plans. Part C plans offer seniors all the benefits of Part A and Part B and more: many feature prescription drug coverage as well as vision and dental benefits. To enroll in a Part C plan, you need have Part A and Part B coverage in place. To keep up your Part C coverage, you must keep up your payment of Part B premiums as well as your Part C premiums.4

To say not all Part C plans are alike is an understatement. Provider networks, premiums, copays, coinsurance, and out-of-pocket spending limits can all vary widely, so shopping around is wise. During Medicare’s annual Open Enrollment Period (October 15 – December 7), seniors can choose to switch out of Original Medicare to a Part C plan or vice versa; although any such move is much wiser with a Medigap policy already in place.5

How does a Medigap plan differ from a Part C plan? Medigap plans (also called Medicare Supplement plans) emerged to address the gaps in Part A and Part B coverage. If you have Part A and Part B already in place, a Medigap policy can pick up some copayments, coinsurance, and deductibles for you. Some Medigap policies can even help you pay for medical care outside the United States. You pay Part B premiums in addition to Medigap plan premiums to keep a Medigap policy in effect. These plans no longer offer prescription drug coverage; in fact, they have been sold without drug coverage since 2006.6

Part D: prescription drug plans. While Part C plans commonly offer prescription drug coverage, insurers also sell Part D plans as a standalone product to those with Original Medicare. As per Medigap and Part C coverage, you need to keep paying Part B premiums in addition to premiums for the drug plan to keep Part D coverage going.7

Every Part D plan has a formulary, a list of medications covered under the plan. Most Part D plans rank approved drugs into tiers by cost. The good news is that Medicare’s website will determine the best Part D plan for you. Go to medicare.gov/find-a-plan to start your search; enter your medications and the website will do the legwork for you.8

Part C & Part D plans are assigned ratings. Medicare annually rates these plans (one star being worst; five stars being best) according to member satisfaction, provider network(s), and quality of coverage. As you search for a plan at medicare.gov, you also have a chance to check out the rankings.9

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.
1 – mymedicarematters.org/coverage/parts-a-b/whats-covered/ [5/8/18]
2 – medicare.gov/coverage/skilled-nursing-facility-care.html [5/8/18]
3 – medicare.gov/your-medicare-costs/part-b-costs/part-b-costs.html [5/8/18]
4 – medicareinteractive.org/get-answers/medicare-health-coverage-options/medicare-advantage-plan-overview/medicare-advantage-basics [5/8/18]
5 – medicare.gov/sign-up-change-plans/when-can-i-join-a-health-or-drug-plan/when-can-i-join-a-health-or-drug-plan.html [5/8/18]
6 – medicare.gov/supplement-other-insurance/medigap/whats-medigap.html [5/8/18]
7 – ehealthinsurance.com/medicare/part-d-cost [5/8/18]
8 – medicare.gov/part-d/coverage/part-d-coverage.html [5/8/18]
9 – medicare.gov/sign-up-change-plans/when-can-i-join-a-health-or-drug-plan/five-star-enrollment/5-star-enrollment-period.html [5/8/18]

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Combining Your Finances When You Marry

How separate (or intertwined) should your financial lives be?

Some spouses share everything with each other – including the smallest details of their personal finances. Other spouses decide to keep some individual financial decisions and details to themselves, and their relationships are just fine.

Just as a marriage requires understanding, respect, and compromise, so does the financial life of a married couple. If you are marrying soon or have just married, you may be surprised (and encouraged) by the way your individual finances may and may not need to change.

If you are like most single people, you have two or three bank accounts. Besides your savings account and your checking account, you may also have a “dream account” where you park your travel money or your future down payment on a home. You can retain all three after you marry, of course – but when it comes to your expenses, you have a fundamental decision to make.

After you marry, the two of you may also find it best to have three checking accounts. A joint account can be set up specifically for household expenses, with each spouse retaining an individual checking account. Of course, each spouse might also maintain an individual savings account.

Do you want to have a joint bank account? The optimal move is to create it as soon as you marry. Some newlyweds find they need a joint bank account only after some financial trial and error; they may have been better off starting out married life with one.

If you only have individual checking accounts, that forces some decisions. Who pays what bill? Should one of you pay most of the bills? If you have a shared dream (like buying a home), how will you each save for it? How will you finance or pay for major purchases?

It is certainly possible to answer these money questions without going out and creating a joint account. Some marrying couples never create one – they already have a bunch of accounts, so why add another? There can be a downside, though, to not wedding your finances together in some fashion.

Privacy is good, but secrecy can be an issue. Over time, that is what plagues some married couples. Even when one spouse’s savings or investments are individually held, effects from that individual’s finances may spill into the whole of the household finances. Spouses who have poor borrowing or spending habits, a sudden major debt issue, or an entirely secret bank account may be positioning themselves for a money argument. The financial impact of these matters may affect both spouses, not just one.

A recent TD Ameritrade survey found that 38% of those questioned had little or no information about the debts their partner may hold. In another survey by Fidelity, 43% of respondents indicated that they had no idea what salary their partner brings home. This is hard to reconcile with the same Fidelity survey indicating that 72% of couples say that they are excellent communicators. Still, an effort to live up to that impression is a step in the right direction; more communication may help put both partners on the same page.1

So, above all, talk. Talk to each other about how you want to handle the bills and other recurring expenses. Discuss how you want to save for a dream. Chat about the way you want to invest and the amount of risk and debt you think you can tolerate. Combine your finances to the degree you see fit, while keeping the lines of communication ever open.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.
1 – time.com/money/4776640/money-tips-married-couples/ [6/1/17]

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You Can Limit Financial Costs if You Predecease Your Spouse, if Not the Emotional Ones

The transfer of assets when a spouse dies can be fairly simple—if you learn from my mistakes.

I pride myself on keeping meticulous financial records. But since my wife died on Jan. 1, I discovered I had made some real rookie mistakes that led to hours of extra work and substantial fees. The transfer of assets between spouses can be fairly simple—if you learn from my mistakes.

Dr. Lisa Jane Krenzel and I shared everything throughout our marriage. Like many couples, we split responsibilities. I paid the bills and made investments. She took care of our health insurance, plus the house. We maintained individual checking and savings accounts, as well as separate retirement accounts from various jobs throughout our careers. What went wrong?

  • Issue One:When we opened those checking and savings accounts, we never named beneficiaries. I had assumed, incorrectly, that our accounts would simply transfer to the other in case of death. The banker who opened the accounts never suggested otherwise. With a named beneficiary, her accounts would have simply been folded into mine. Instead, I had to hire a lawyer—at $465 an hour—to petition the court to name me as the executor of her estate. I needed this power to transfer her accounts. Filing costs in New York City for the necessary document was $1,286. The running bill for the lawyer stands at $7,402.00, and I expect it to rise.

I also needed the documents for the companies that managed her retirement accounts and a mutual fund, because, as at the bank, we never named a beneficiary. By the way, this paperwork also required signature guarantees or a notary seal, which can take up an afternoon.

  • Issue Two: The highly charged question of funeral and burial. Last summer, when I was told Lisa would not survive this illness, I tried to raise the issue of burial with her. She refused to have the conversation, but I quietly went ahead and purchased a plot of graves in the cemetery in Wisconsin where my parents, grandparents and great-grandparents are buried. This was something I actually did right.

We had to employ two funeral homes—one in New York and one in Wisconsin—and her body had to make the journey out there. All told, I spent $46,359 to cover funeral expenses, graves, transportation, a headstone and a basic casket.

I noticed something interesting in this process. All of my fellow baby boomer friends I have since asked have so far refused to deal with the issue. They wince when I even raise the question. Hear me: You don’t want to have to make this decision at the time someone close to you dies. You simply are not thinking straight.

  • Issue Three: Our health insurance plan covered the long hospital stays and doctors’ visits. However, shortly after Lisa died, I still received bills, even though our deductibles and copays had long since been covered. I paid them immediately, which was a mistake. I was incorrectly billed and I have been fighting the hospitals and insurance company since January to get a refund, even though everyone agrees the bills were incorrect. Before you pay any medical bills, make a simple call and determine their legitimacy. Mistakes are constant: The systems are so complicated, even people in these offices don’t always understand the intricacies.
  • Issue Four:Lisa had two life-insurance policies—one through her work and the other we purchased privately. The former was handled quickly and efficiently by her job and a check arrived almost immediately. Although the insurance company sent me a check for her private policy soon after her death, it took three months of constant calls and emails to determine a refund of the premium I had already paid for three months past her death. I kept getting wrong information from the company, because the people I dealt with didn’t understand it themselves.
  • Issue Five: Over the course of Lisa’s working life—from her first job at a fast-food restaurant to medicine—she paid more than $100,000 to Social Security. Since she died at 60, and our 19-year-old daughter is one year past the age of receiving a monthly benefit, all this money has simply disappeared into the lockbox in Washington. Nothing you can do about this one.

Finally, there is the major psychological trauma of grief. I think most people believe death will never intrude on their lives and when it does, we will be so old and decrepit that it won’t much matter. Trust me on this—even when it’s been expected for a while, it still shocks deeply. There is absolutely no way you can prepare yourself for the shattering heartbreak of loss. When it did come to me, I found the support of friends, family and faith to be invaluable. Amazingly, that cost nothing.

Mr. Kozak is the author of “LeMay: The Life and Wars of General Curtis LeMay” (Regnery, 2009). Appeared in the April 28, 2018, print edition.

Rich Arzaga, CFP® & David Winkler
Cornerstone Wealth Management, Inc.
info@cornerstonewmi.com

2400 Camino Ramon, Suite 175
San Ramon, CA 94583
925-824-2880

CA Insurance Lic# 0D92796 & Lic# 0G10586. Rich Arzaga and David Winkler are registered representative with, and Securities and Advisory services offered through, LPL Financial, a registered investment advisor, Member FINRA/SIPC. Financial planning is offered through Cornerstone Wealth Management, Inc. a registered investment advisor and a separate entity from LPL Financial. The information contained in this e-mail message is being transmitted to and is intended for the use of only the individual(s) to whom it is addressed. If the reader of this message is not the intended recipient, you are hereby advised that any dissemination, distribution or copying of this message is strictly prohibited. If you have received this message in error, please immediately delete.

This article was prepared by a third party for information purposes only. It is not intended to provide specific advice or recommendations for any individual.

LPL Tracking 1-728789

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Managing Money Well as a Couple

What are the keys in planning to grow wealthy together?

When you marry or simply share a household with someone, your financial life changes – and your approach to managing your money may change as well. To succeed as a couple, you may also have to succeed financially. The good news is that is usually not so difficult.

At some point, you will have to ask yourselves some money questions – questions that pertain not only to your shared finances, but also to your individual finances. Waiting too long to ask (or answer) those questions might carry an emotional price. In the 2017 TD Bank Love & Money survey consumers who said they were in relationships, 68% of couples who described themselves as “unhappy” indicated that they did not have a monthly conversation about money.1

First off, how will you make your money grow? Simply saving money will help you build an emergency fund, but unless you save an extraordinary amount of cash, your uninvested savings will not fund your retirement. Should you hold any joint investment accounts or some jointly titled assets? One of you may like to assume more risk than the other; spouses often have different individual investment preferences.

How you invest, together or separately, is less important than your commitment to investing. Some couples focus only on avoiding financial risk – to them, maintaining the status quo and not losing any money equals financial success. They could be setting themselves up for financial failure decades from now by rejecting investing and retirement planning.

An ongoing relationship with a financial professional may enhance your knowledge of the ways in which you could build your wealth and arrange to retire confidently.

How much will you spend & save? Budgeting can help you arrive at your answer. A simple budget, an elaborate budget, or any attempt at a budget can prove more informative than none at all. A thorough, line-item budget may seem a little over the top, but what you learn from it may be truly eye opening.

How often will you check up on your financial progress? When finances affect two people rather than one, credit card statements and bank balances become more important, so do IRA balances, insurance premiums, and investment account yields. Looking in on these details once a month (or at least once a quarter) can keep you both informed, so that neither one of you have misconceptions about household finances or assets. Arguments can start when money misunderstandings are upended by reality.

What degree of independence do you want to maintain? Do you want to have separate bank accounts? Separate “fun money” accounts? To what extent do you want to comingle your money? Some spouses need individual financial “space” of their own. There is nothing wrong with this, unless a spouse uses such “space” to hide secrets that will eventually shock the other.

Can you be businesslike about your finances? Spouses who are inattentive or nonchalant about financial matters may encounter more financial trouble than they anticipate. So, watch where your money goes, and think about ways to repeatedly pay yourselves first rather than your creditors. Set shared short-term, medium-term, and long-term objectives, and strive to attain them.

Communication is key to all this. In the TD Bank survey, 78% of the respondents indicated they were comfortable talking about money with their partner, and 90% of couples describing themselves as “happy” claimed that a money talk happened once a month. Planning your progress together may well have benefits beyond the financial, so a regular conversation should be a goal.1

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.
1 – newscenter.td.com/us/en/campaigns/love-and-money [1/2/18]

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Who’s in Charge Here? Aging Parents Resist Interfering ‘Helicopter’ Children

Joshua Coleman remembers watering down a glass of wine before giving it to his father, then in his 90s.

“What the hell is this?” he recalls his father asking.

“I feel a little guilty about that now,” says Dr. Coleman, whose father died in 2001. “The poor old guy had few remaining pleasures left. But I would have felt bad had he gone back to assisted living and slipped.”

There’s a fine line between being an appropriately concerned adult child and an overly worried, helicopter one, says Dr. Coleman, a psychologist who specializes in family dynamics. If a parent is in an accident, it might be time to talk about driving, as he did after his father sideswiped three cars. But if Mom doesn’t want to wear a hearing aid, it might be wise not to nag. Maybe she doesn’t want to listen to anyone at the moment.

When Cathy Walbert, a mother of five, picked up a baby at a family gathering last year, her daughter rushed to her side, worried she might drop her. Another daughter hovers when Mrs. Walbert—who says she probably is more candid than she was years ago—starts talking to someone. Her son tells her to be careful on the steps.

“I think, ‘What’s wrong with you people?’ I’m an adult,” says Mrs. Walbert, of Pittsburgh who says she is older than 75.

“You start treating them like a child, saying ‘Don’t do this’ or ‘Don’t do that,’ ” says her daughter, Lisa Spor. Her mother, she says, usually responds “What do you mean, ‘Don’t do that?’ ”

A big question adult children need to ask is whether they are intervening for their parents’ well-being or to alleviate their own worries, says William Doherty, a family therapist and professor of Family Social Science at the University of Minnesota. “If your 80-year-father is still driving, you worry,” even if he is capable of driving, he says. “If he’s not driving, you don’t worry, but your father has had a big loss.”

During her career as a clinical psychologist, Laura Carstensen, who is also founding director of Stanford University’s Center on Longevity, heard from both sides. Parents wanted advice on how to get their kids off their back. Adult children wanted advice on how to persuade their parents to give up their family home.

In general, her advice is that unless a parent is cognitively impaired and not aware of the level of his or her impairment, children need to respect the parent’s decision.

“These are difficult situations,” she says. “I know that first-hand.”

In 2015, Dr. Carstensen tried to talk her father, then 95, into leaving New York and moving to the California home she shares with her husband. Her father, a scientist, was still writing and publishing papers. But he was having trouble with balance and lived in a two-story house where he had to go down to the basement to do his laundry.

“Was I worried? Yes, I was worried,” she says. He was hard of hearing, so phone calls were difficult. A few times when she couldn’t reach him, she worried that something had happened, only to learn he had simply gone to the drugstore.

Her father did agree to have activity sensors installed in certain places in the house—his chair by the computer, the refrigerator, the cutlery drawer. Every morning, Dr. Carstensen would check the sensors and if they indicated activity, she knew not to worry.

“He really wanted to live in his own home,” she says. She talked to him about her concerns that he would fall. He told her that falling down in his own home was as “good a way to go as he could imagine.” Her father did eventually die, at 96, after a fall at home.

Do kids need to monitor every time a parent crosses the room or goes to the bathroom? You have to give them space to live their own life.’

                        —Grace Whiting, chief executive of the National Alliance for Caregiving

Grace Whiting, chief executive of the National Alliance for Caregiving, says monitoring devices can turn into a proxy helicopter. They can be extremely useful, especially in the case of an emergency, she says, as long as they don’t compromise the dignity of an older adult. “Do kids need to monitor every time a parent crosses the room or goes to the bathroom?” she asks. “You have to give them space to live their own life.”

Even small, well-intentioned acts can send the wrong message to parents, says Ellen Langer, a Harvard psychologist and author. If a parent fumbles with the key when trying to unlock a door, kids should be patient and wait, rather than grabbing the key and taking over. While you may be trying to be helpful, the message, deliberate or not, is that you are competent, and the parent isn’t, she says.

When Rip Kempthorne’s parents were having trouble covering the mortgage on their farm in Kansas, he suggested they relocate to Olympia, Wash., and move in with his young family. They did. Charley, 80, and June, 71, have a basement apartment to themselves. Their 5-year-old granddaughter runs in and out.

“There was no pressure,” says Charley Kempthorne. He and his wife expect the time will come when they can’t make decisions on their own and are grateful to be with family before that time comes. For the moment, the younger Kempthornes don’t have to hover over Charley and June because they watch out for each other.

June tells Charley to put in his hearing aid. He tells her not to leap out of the car. After several falls, she has given up sandals for sturdier shoes. “They won’t let me carry groceries,” says June, but that is probably a good thing. “I tend to carry too much and fall over.”

David Solie, an expert in geriatric psychology, says he was overly anxious when caring for his mother, Carol. As her health deteriorated, he was urged by a cousin, who lived closer to her, to move her into assisted living, which she strongly opposed. At one point, he went to the family attorney asking what he could do. The attorney told him his mother moved slowly and couldn’t open a jar of food, but was coherent and articulate. He advised Mr. Solie to wait, which he ultimately did. His mother remained at home until she had a massive stroke.

In retrospect, Mr. Solie says he wishes he had relaxed more and not been so consumed by getting her to give up her home.

Mr. Solie cautions other adult children against trying to make sure everything is perfect, with every pill taken and every appointment kept. “Don’t point out everything that they forgot or that they aren’t as clean as they should be,” he says. “Cut them some slack.” And if they want to date—something that many adult children oppose for fear of their parents being hurt or losing part of their inheritance—don’t stand in the way. “Allow them to be happy.”

How to avoid becoming a helicopter child:

  • Unless your father or mother has dementia, don’t make decisions for him or her. Discuss matters and remember he or she has a right to take informed risks.
  • If you and your parents don’t agree on their level of competence, consult a professional together.
  • Don’t go through your parents’ mail or screen their calls unless asked.
  • Pick your battles. If a parent is getting lost or has stopped bathing, talk about what help he or she might need to remain independent. If his or her clothes don’t match, get over it.
  • If a parent has cataracts in both eyes and continues to drive at night, ask the primary-care physician to intervene.
  • If your parents forget to turn off the stove, don’t jump to the conclusion they can’t stay in their home. Look into devices that turn stoves off automatically.
  • Use classic ‘I’ language, such as: ‘I am concerned about you living in a two-story house after your heart attack.’ Avoid: ‘You can’t live here anymore.’

Write to Clare Ansberry at clare.ansberry@wsj.com. Appeared in the April 24, 2018, print edition as ‘Aging Parents Resist ‘Helicopter’ Children The Right Approach.’

LPL Tracking 1-728975

Did Your Kid Get Placed on a College Wait List? Don’t Hold Your Breath

Liam Tormey, a senior at Valley Stream South High School in New York, applied to 15 colleges. Four rejected him. Four accepted him.

The remaining seven put the 17-year-old on their wait lists—a rapidly growing admissions limbo from which few students escape.

“I thought for sure, after getting wait list after wait list, that something was wrong with my application,” said Mr. Tormey, who thought he would get into more schools than he did.

As hundreds of thousands of high-school seniors face a May 1 deadline to put down deposits at their college of choice, many still face uncertainty over where they will end up. Their futures are clouded by the schools’ use of wait lists to make sure they have the right number, and type, of students come fall.

The University of Virginia increased the number of applicants invited onto wait lists by 68% between 2015 and 2017. At Lehigh University, that figure rose by 54%. And at Ohio State University, it more than tripled.

At some schools, the chance of getting off the wait list has plummeted as the pool has expanded. For the fall 2012 entering class, the University of California, Berkeley admitted 66% of the 161 applicants that were wait listed. Last year, only 27% of the 7,459 applicants on the wait list were ultimately admitted.

With high-school students applying to more colleges these days, schools have a tougher time predicting how many admitted students will actually enroll. Too few students can lead to financial trouble. Too many means overcrowded dorms and classrooms.

Some schools are locking in more students through binding early-decision offers. They are also keeping a deeper bench of backups to whom they can turn if, come the deposit deadline, they are still short of enrollment targets or don’t have quite the right mix of students. Wait-listed applicants usually accept admission offers, allowing schools to control enrollment numbers.

“It’s an admission dean’s dream. You see where you are on May 1, then you round out the class by going to the wait list,” said Michael Steidel, dean of admission at Carnegie Mellon University.

That school, with a target of 1,550 freshmen, offered wait-list spots to just over 5,000 applicants this year.

“You can take stock and ‘fix’ or refine the class by gender, income, geography, major or other variables,” said Jon Reider, director of college counseling at San Francisco University High School. “A large waiting list gives you greater flexibility in filling these gaps.”

This year, applications to Carnegie Mellon rose 19%. With more students accepting its offers of admission, it couldn’t risk over-enrolling. The school admitted 500 fewer students and expects to go to some of its wait lists to make sure each undergraduate program meets enrollment goals, and that there is a good mix of students, including enough aspiring English majors or kids from South Dakota. The school can also take into account the financial situations of wait-listed candidates.

Carnegie Mellon University Dean of Admission Michael Steidel has been sent a variety of objects by eager applicants, including a replica of CMU’s Walking to the Sky sculpture and a painted coconut. PHOTO: MICHAEL HENNINGER/CARNEGIE MELLON UNIVERSITY

Berkeley spokeswoman Janet Gilmore said rising out-of-state tuition and competition from other colleges courting California students have caused uncertainty over how many accepted students will enroll, so more conservative offers for regular admission and reliance on the wait list offers flexibility.

Between fall 2015 and fall 2016, the latest year available, the average number of students offered spots on wait lists increased by 11% and the number admitted from those lists jumped 31%, according to the National Association for College Admission Counseling.

But there is a backlash to the surging numbers of students offered spots on the lists.

“It is cruel and keeps FAR too many students hanging on with unrealistic hopes of being accepted,” Cristiana Quinn, an admission consultant in Rhode Island, wrote last month in an open letter posted to an email list for the college-admission association.

Ivy League school applicants receive acceptance and rejection letters this week, but many students will wind up on wait lists. College Essay Advisors founder Stacey Brook and WSJ’s Tanya Rivero discuss tips for students and their parents. Photo: iStock (Originally Published March 30, 2017)

Joseph Humphrey, an 18-year-old senior at Homewood-Flossmoor High School near Chicago, called his wait-listed status at the University of Michigan, Northwestern, Vanderbilt and Notre Dame “college admissions purgatory.”

He signed up for all the lists but also put down a deposit to enroll at the University of Illinois Urbana-Champaign, where he was offered a merit scholarship. He said he would definitely attend one of the four if admitted off the wait list but would have to think carefully about the others.

Officials at the University of Oregon determined last year that their wait list—on which spots were offered to roughly 1,000 applicants for a freshman class of nearly 4,000—had gotten out of hand.

“We had moved into this place where students saw it as just kind of a deferred denial,” said Roger Thompson, vice president for student services and enrollment management, noting that sometimes only a few dozen students got off the list.

Oregon offered wait-list spots to 134 applicants for the fall 2017 class, ultimately admitting 73. Applications jumped by 20% this year, and the school invited about 300 applicants to join its wait list.

Schools are doing little more than “emotionally stringing the student along” by dangling a wait-list offer, said Whitney Bruce, an admission consultant in Portland, Maine.

She urges clients to “start to fall in love with one of the schools where they were accepted.”

Mr. Tormey of Valley Stream South High School didn’t want to remain unsettled into the summer months and so decided against putting his name on the wait lists at Boston College and Villanova University, his original top-choice schools.

“I have four schools that I’ve been admitted to, who want me,” he said. He plans to submit a deposit at Providence College in Rhode Island.

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Will Teachers Get the Retirement That They Deserve?

Classroom educators are coping with hybrid plans and pension fund shortfalls.

Arizona. Kentucky. Massachusetts. Michigan. Pennsylvania. Rhode Island. Tennessee. In these states and others, teachers are concerned about their financial futures. The retirement programs they were counting on have either restructured or face critical questions.1,2

Increasingly, states are transferring investment risk onto teachers. Hybrid retirement plans are replacing conventional pension plans. These new plans combine a 401(k)-style account with some of the features of a traditional pension program. Payouts from hybrid retirement plans are variable – they can change based on investment returns. The prospect of a fluctuating retirement income is making educators uneasy, especially in states such as Kentucky where teachers do not pay into Social Security.1

Traditional pensions have vanished for teachers starting their careers in Michigan, Rhode Island, and Tennessee. In 2019, that may also happen in Pennsylvania.1

In some states, educators are being asked to offset a shortfall in pension funds. Arizona teachers now must contribute 11.3% of their pay to the Arizona State Retirement System, compared to 2.2% in 1999. (What makes this situation worse is that the average Arizona public schoolteacher earns 10% less today than he or she did in 1999, adjusted for inflation.)2

Classroom teachers in Massachusetts already have 11% of their salaries directed into the state retirement fund; in California, almost 10% of teacher pay goes into the state retirement system. (The national average is 8.6%.) Make no mistake, some of these pension fund problems are major: New Jersey’s state retirement system is only 37% funded, and Kentucky’s is just 38% funded.1,3

How can teachers respond to this crisis? One way is to plan for future income streams beside those from underfunded or reconceived state retirement systems. A talk with a financial professional – particularly one with years of experience helping educators make sound, informed financial decisions – may help identify the options.

That conversation should happen sooner rather than later. Educators in some states are no longer assured of fixed pension payments – and unfortunately, the ranks of these teachers seem to be growing.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.
1 – money.cnn.com/2018/04/04/retirement/teacher-pensions-kentucky/index.html [4/4/18]
2 – money.cnn.com/2018/04/20/pf/arizona-teacher-pay/index.html [4/20/18]
3 – yankeeinstitute.org/2018/04/bill-seeks-to-lower-teacher-pension-contribution/ [4/11/18]

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The Different Types of IRAs

This popular retirement savings vehicle comes in several varieties.

What don’t you know? Many Americans know about Roth and traditional IRAs, but there are other types of Individual Retirement Arrangements. Here’s a quick look at all the different types of IRAs:

Traditional IRAs (occasionally called deductible IRAs) are the “original” IRAs. In most cases, contributions to a traditional IRA are tax deductible: they reduce your taxable income, and as a consequence, your federal income taxes. Earnings in a traditional IRA grow tax deferred until they are withdrawn, but they will be taxed upon withdrawal, and those withdrawals must begin after the IRA owner reaches age 70½. I.R.S. penalties and income taxes may apply on withdrawals taken prior to age 59½.1

Roth IRAs do not feature tax-deductible contributions, but they offer many potential perks for the future. Like a traditional IRA, they feature tax-deferred growth and compounding. Unlike a traditional IRA, the account contributions may be withdrawn at any time without being taxed, and the earnings may be withdrawn, tax-free, once the IRA owner is older than 59½ and has owned the IRA for at least five years. An original owner of a Roth IRA never has to make mandatory withdrawals after age 70½. In addition, a Roth IRA owner may keep contributing to the account after age 70½, so long as he or she has earned income. (A high income may prevent an individual from making Roth IRA contributions.)1,2

Some traditional IRA owners convert their traditional IRAs into Roth IRAs. Taxes need to be paid once these conversions are made.1

SIMPLE IRAs are traditional IRAs used in a SIMPLE plan, a type of retirement plan for businesses with 100 or fewer workers. Employers and employees can make contributions to SIMPLE IRA accounts. The annual contribution limit for a SIMPLE IRA is more than twice that of a regular traditional IRA.3

SEP-IRAs are Simplified Employee Pension-Individual Retirement Arrangements. These traditional IRAs are used in SEP plans, set up by an employer for employees, and funded only with employer contributions.4

Spousal IRAs really do not exist as a distinct IRA type. The term actually refers to a rule that lets non-working spouses make traditional or Roth IRA contributions as long as the other spouse works and the couple files joint federal tax returns.1

Inherited IRAs are Roth or traditional IRAs inherited from their original owner by either a spousal or non-spousal beneficiary. The rules for Inherited IRAs are very complex. Surviving spouses have the option to roll over IRA assets they inherit into their own IRAs, but other beneficiaries do not. No contributions can be made to Inherited IRAs, which are also sometimes called Beneficiary IRAs.5

Group IRAs are simply traditional IRAs offered by employers, unions, and other employee associations to their employees, administered through trusts.6

Rollover IRAs (occasionally called conduit IRAs) are IRAs created to store assets distributed from another qualified retirement plan, often an employer-sponsored retirement plan. If the original plan were a Roth, then a Roth IRA must be created for the rollover. Assets from a non-Roth plan may be rolled over into a Roth IRA, but the rollover will be viewed as a Roth conversion by the Internal Revenue Service.6,7

Education IRAs are now mainly referred to by their proper name: the Coverdell ESA. A Coverdell ESA is a vehicle that helps middle-class investors save for a child’s education. Taxes are deferred on the assets saved and invested through the account. Contributions to a Coverdell ESA are not deductible, but withdrawals are tax-free, provided they are used to pay for qualified higher education expenses.8

Consult a qualified financial professional regarding your IRA options. There are many choices available, and it is vital that you understand how your choice could affect your financial situation. No one IRA is the “right” IRA for everyone, so do your homework and seek advice before you proceed.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 – thestreet.com/story/14545108/1/traditional-or-roth-ira-or-both.html [4/4/18]

2 – forbes.com/sites/catherineschnaubelt/2018/04/25/choosing-the-best-ira-to-maximize-your-retirement-savings/ [4/25/18]

3 – fool.com/retirement/2017/10/28/2018-simple-ira-limits.aspx [10/28/17]

4 – investopedia.com/university/retirementplans/sepira/ [11/14/17]

5 – investopedia.com/terms/i/inherited_ira.asp [4/30/18]

6 – fool.com/retirement/iras/the-eleven-types.aspx [4/30/18]

7 – investor.vanguard.com/401k-rollover/options [4/30/18]

8 – investopedia.com/terms/c/coverdellesa.asp [4/30/18]

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Sell in May? Not so fast….

May’s arrival has brought warmer weather to many parts of the U.S. (finally), but it also brings talk of one of the most widely cited stock market clichés in history. “Sell in May and go away” is a longstanding investment adage because historically, the six-month period from May through October has been the weakest stretch of the year. However, before you spring into action, it’s important to step back and look at the big picture of what’s really driving our current market environment. The fundamentals of impressive earnings, modest valuations, and a strong economic backdrop may be better indicators to watch.

Looking at these underlying factors of today’s economic and market environment suggests opportunity for further growth, despite this historically weaker season. Here are a few highlights to note:

  • Impressive earnings season. With most companies having reported first quarter results, earnings for the quarter are tracking to a double-digit increase (more than 20%) compared to the first quarter of last year. Guidance for future earnings has also been positive.
  • Solid economic growth. The initial estimate for gross domestic product for the first quarter was a slowdown from the prior three quarters, but it still exceeded expectations. The slowdown seems to be a result of temporary factors, and leading indicators suggest continued growth for the U.S. economy.
  • Reasonable stock valuations. Although stock valuations are slightly above average right now, when considering the positive earnings outlook, low inflation, and low interest rates, stocks don’t appear to be as expensive as some would suggest.

Combined, these factors paint a favorable picture overall for the potential of further market gains. At the same time, it’s prudent not to dismiss the possibility for some seasonal weakness or other risk factors that could impact the markets. The possibility for a modest pullback during this upcoming period remains; for suitable investors, this could present an opportunity to rebalance portfolios and potentially add to equity positions. All in all, for many investors, the main takeaway is to stay focused on the long term, as reacting to seasonal weakness by selling stocks could prove detrimental to the long-term performance of portfolios.

While keeping an eye on historical trends and seasonal patterns is important, as they can provide valuable context to the market environment—they shouldn’t dictate your investment strategy. So don’t let the “sell in May” adage bring you down. Enjoy the warmer weather and extra hours of sunlight, and stick to your long-term investment plan.

As always, if you have any questions, I encourage you to contact me.

Important Information

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. Economic forecasts set forth may not develop as predicted. All performance referenced is historical and is no guarantee of future results. Indexes are unmanaged and cannot be invested into directly.

Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.

Rebalancing a portfolio may cause investors to incur tax liabilities and/or transaction costs and does not assure a profit or protect against a loss. This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.

This research material has been prepared by LPL Financial LLC.