
The DRM 1930’s murder mystery gang.
Day Rettig Martin | Experienced Attorneys in Cedar Rapids, Iowa
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Imagine. It is a powerful tool each of us have. In fact, “Imagine” was the most successful single recording of The Beatles’ John Lennon’s solo career. The song has been covered by artists ranging from Liza Minnelli to Stevie Wonder to Neil Young to Lady Gaga and performed at venues ranging from The Olympics to Concerts for Peace.
While the impact and influence of the song “Imagine” reaches across the globe, and the lyrics such as “imagine no possessions, I wonder if you can” may trigger a mosaic of different emotions, the reality is approximately 74 million Baby Boomers will reach age 65 in just five years without imagining and planning for how their affairs will be settled once they die.
Despite studies showing those 74 million Boomers may have over $30 trillion in assets to leave their heirs, the majority of Boomers either; dismiss estate planning because they mistakenly believe it is only necessary for “rich folks”; or, they procrastinate. In the US, over 55% of Boomers don’t expect to have any money to pass on. About 45% don’t have a Will. Even those with money don’t always plan. A few years ago, Aretha Franklin died without a Will and her Estate was tied up in the inevitable snarl of Legal Administration, a state court process where loved ones can be consumed in the quick sand of time-consuming, confusing, expensive and bureaucratic processes of settling the deceased individual’s affairs.
Face it. Estate planning issues are not reserved to Boomers. All of us now have a digital legacy such as email messages, online financial and social media accounts, digital photos, videos, etc. As people live longer and die online, family members, friends, executors, administrators are left to sift through the daunting task of navigating access to passwords without authority to manage the online accounts of the deceased. Loved ones will face a gauntlet of security hurdles to retrieve information necessary to settle final bills and secure a deceased’s individual’s financial information where fraudster’s are applying for credit in the deceased’s name.
Given the statistics of Boomers not wanting to imagine how to settle their affairs once they are no longer here, and considering the rest of the folks who simply do not understand the implications of the Wild, Wild, West of the Digital Age, it is not surprising that most of us do not have a plan for managing our affairs in the digital world. But is that how we want to leave things for our loved ones? Is that who we are? Is that our legacy?
The good news is; all of us can take a few simple steps to have a plan in place in the event of our death. Fortunately, Robin Williams did. With his tragic suicide came the inevitable fall out associated with three marriages and three children wanting a piece of the pie. But Robin had imagined. Robin had a Will, a Revocable Living Trust and had entered into a Prenuptial Agreement with his third wife. Although his heirs still battled over his Estate, by planning ahead, Robin was able to diminish a lengthy legal battle which had the potential of devastating his family. See https://www.reelz.com/extra/no-stranger-legal-battles-robin-williams-protected-family-similar-fate-death/
While “imagination” is a powerful tool, it is also complex. It is a call for us to imagine something that seems unimaginable in the current world we live in. Yet, the lyrics of “Imagine” have no less relevance in the uncertain world of 2022 than they did in John Lennon’s 1971. Isn’t it time to step up and imagine how you want to leave your affairs when you are no longer on this planet?
The attorneys at Day Rettig Martin, P.C. provide a full complement of affordable estate planning services. If you have any questions about creating or amending a Will or estate plan, please give us a call at (319) 365-0437.
The Iowa Supreme Court has issued an Order revising the Child Support Guidelines. Those revisions take effect on January 1, 2022 and apply to cases pending on that date and thereafter. They also apply to modification of child support orders.
The purpose of the Guidelines is to provide for the best interests of the children by recognizing the duty of both parents to provide adequate support for their children in proportion to their respective incomes. There can be a low-income adjustment for low-income obligated non-custodial parents with the objective of striking a balance between adequately supporting the obligated parent’s children and allowing the obligated parent to live at least at a subsistence level.
There is a rebuttable presumption that the amount of child support calculated under the Guidelines is the correct amount of child support to be awarded; however, that amount may be adjusted upward or downward to provide for the needs of the children or to do justice between the parties under the circumstances of the case pursuant to Rule 9.11. The court may, if appropriate, impute income to a party under Rule 9.11. Any variance must be supported in a written finding by the Court. Child care expenses can play a role in determining a variance but are considered independent of any amount computed by the use of the Guidelines or any other grounds for a variance.
Spousal support, whether paid in the present case or in a prior case, is considered when determining how “gross monthly income” is determined based upon whether the spousal support is subject to income taxation; however, “reimbursement spousal support” will not be added to a payee’s income or deducted from a payor’s income when determining “gross monthly income”.
“Uncovered medical expenses” will be shared by the parties in proportion to their respective net incomes in joint physical care cases. In all other cases the custodial parent is to pay the first $250 per calendar year per child up to a maximum of $800 per calendar year for all children, thereafter the parties pay in proportion to their respective net incomes.
There are still credits given for extraordinary visitation care under Rule 9.9 depending upon the number of overnight visitations taken by the non-custodial parent.
The Guidelines dictate that all parties must file a child support guidelines worksheet prior to a support hearing or the establishment of a support order.
If you have a specific support issue, please contact our office.
Day Rettig Martin, P.C. welcomes Erica L. Yoder as an Associate Attorney with the firm.
Erica spent more than 14 years as in-house counsel for a large, publicly traded insurance company and 2 ½ years as in-house counsel for a holding company specializing in government contracts and turn around management before opening her own firm in 2017. She brings with her a great deal of experience within the business world. She has a BA degree from Central College, in Pella, Iowa, an MA from Purdue University, and received her JD from the University of Iowa. Growing up active in 4-H and living on a farm in rural Iowa County, Iowa, Erica brings an awareness of farm issues and a strong desire to assist rural clients. Her practice includes business formation and transactions, regulatory compliance, debt/creditor matters, bankruptcy, and estate planning.
Due to the novel coronavirus and it ability to rapidly spread, many normal summer events were canceled this year. The Linn County Fair was one of those events. For the first time since it has been held at the Central City fairgrounds, there was no Linn County Fair. However, there were still 4-H and FFA members who raised their fair projects.
The 4-H/FFA youth continued to learn and apply their knowledge and efforts to gain experience with their projects and were able to “market” their projects with the help of the Linn County Fair Board. A special thanks to Hoge Auctioneering LLC for conducting an “online” auction for the youth. Interested persons were able to view fair projects and contribute to the members by bidding. Day Rettig Martin, P.C. was happy and proud to continue its support of the fair participants and was successful in winning the bids on four entries.
Day Rettig Martin, P.C. has added ribbons from four local 4-H members to its growing collection. As Covid-19 cases in Iowa continue to rise, we are glad to do our part to help our Linn County Community. We are confident that through the efforts of the Linn County Fair Board, the Iowa Extension Service, the youth participants, and caring members of the community, the Linn County Fair will be back next year better than ever.
Earlier this week, Day Rettig Martin, P.C. was the target of a sophisticated fraud scam that attempted to swindle over $150,000 from the firm. A man identifying himself as Charles Gomez contacted our firm through our website seeking legal services. Upon initial contact, he represented that his former employer, Cardinal Health, had wrongfully terminated him in retaliation for reporting wrongful conduct. He further represented that the employer had entered into a severance agreement with him, but had failed to make payment. Our firm assigned an attorney to the matter, and the attorney corresponded with Mr. Gomez and a person identified as a representative of Cardinal Health. The “representative” conceded that the funds were owed, and a few days later the firm received a Fed Ex package with a cashier’s check for the amount that was claimed to be owed pursuant to the written Severance Agreement that Mr. Gomez had provided to us. Immediately after confirming receipt of the check, Mr. Gomez requested the money be wire transferred to a bank account in Mexico. The immediate turnaround of the funds was outside of the firm’s procedures and the attorneys contacted the issuing credit union located in Texas to determine the status of the cashier’s check. The credit union confirmed our suspicions that it had not issued the cashier’s check and would not honor it.
Our firm contacted various federal agencies to report the fraud scam and notified representatives of Cardinal Health. We learned from Cardinal Health that this scam using its name has been running for nearly 2 years. Cardinal Health stated that it is aware of 45 instances of this scam perpetrated nationwide.
This scam was different from other publicized scams in that it did not have the overt “red flags.” Many of the common red flags such as grammar and spelling issues in emails, emails being sent at odd times of the night and morning, and avoidance of providing personal information were absent from our correspondence in this instance. The severance document had the appearance of an actual confidential document, and the e-mail purported to have been sent by the representative of Cardinal Health initially appeared legitimate. Finally, the cashier’s check appeared to be legitimate and the credit union was a legitimate credit union in San Antonio, Texas.
Upon review of the files, we noticed that although the email correspondence appeared to originate from Cardinal Health, the actual domain was “cardinalheathinc.” The Fed Ex package’s “sent address” matched the West Des Moines, Iowa office of Cardinal Health; however, on future investigation it was determined that the packet was sent from Boston. We were able to confirm listings for both the Cardinal Health representative and the purported “client.” Their information was available online.
Our experience shows that law firms are not immune from the efforts of scammers. It is important to remain vigilant for scams, especially in this digital age where it is common for firms to never meet out of state clients. We suggest that everyone, including law firms, remain vigilant. Importantly, while law firms want to assist their clients and turnover funds in a timely manner, they need to verify that they have received “collected funds” prior to disbursing any payment. This is our firm’s first experience receiving what turned out to be a fraudulent “cashier’s check.” We normally consider cashier’s checks to be “collected funds.” Based on this experience we will verify all cashier’s checks in the future as a matter of course.
With many states either already dropping their stay at home orders or scheduled to loosen restrictions soon, many businesses are eager to welcome customers back to their stores. Small businesses are especially anxious as they may literally be running out of funds soon once their Paycheck Protection Program funds are used. Companies however would be incorrect to believe that everything will return to business as usual. The reasons are twofold for small businesses needing to adapt during this time: first, bringing employees and customers back is a legal minefield that needs to be mitigated; second, customers may be hesitant to shop at businesses that have not adopted safety measures.
The family of a deceased JBS SA meatpacking worker recently filed suit that alleged the unsafe conditions at a company plant resulted in him contracting a fatal case of COVID-19. The complaint brings claims of Negligence, Fraudulent Misrepresentation regarding the safety of working conditions at the plant, and Wrongful Death.
Companies should enact safety measure such as: mandating the use of masks; checking employees for a fever; and requiring social distancing of at least six feet when possible to mitigate the chances of being on the wrong side of a crippling Negligence suit. While legal scholars predict that there will a flood of litigation against businesses when reopening, they concede that only complaints alleging the heightened standard of Gross Negligence will have a chance of being successful. It will be difficult for a Plaintiff to show that the company was Grossly Negligent if a robust safety program is written down, made public, and actually followed.
One strategy the talking heads have been promoting is to let younger individuals back first, as they are less likely to be affected by the virus. It may seem then that an employer would be prudent in first allowing younger workers back in a staged reopening, while allowing older or individuals with preexisting conditions back at a later stage once the COVID-19 spread slows. Not so fast. The employer would be opening itself to an Age Discrimination Claim.
The Families First Coronavirus Response Act (“FFCRA”) was passed in March 2020. It requires covered employers (those with fewer than 500 employees) to provide employees up to two weeks of paid sick leave for a number of reasons. Two weeks of paid sick leave at the employee’s regular rate of pay must be provided where the employee is unable to work due to being quarantined or themselves experiencing COVID-19 symptoms. Two weeks of paid sick leave at 2/3 the employee’s regular rate of pay must be provided when the employee is unable to work due to caring for an individual that is quarantined or caring for a child whose school or childcare is closed. If the employee has been employed for at least 30 days, an additional 10 weeks of paid family and medical leave must be provided at 2/3 the employee’s regular rate when caring for a child whose school or childcare provider is closed.
In an ideal world, employers would have plenty of funds to pay these types of benefits to employees. However, many small employers are barely able to keep the lights on may be forced to pay an employee for up to three months of not working. The employer would be eligible for a tax credit for these payments; however, this likely will not give many employers that are on the brink of defaulting on their loans much comfort. Employers must get appropriate need of the need for leave from employees in order to utilize tax credits.
An employer may find itself facing litigation if it chooses to terminate an employee requesting paid leave. A mother recently filed suit against Eastern Airlines LLC alleging that she was fired after making repeated inquiries and requests for paid family leave under the FFCRA.
One possible remedy for small businesses being unable to pay leave benefits is through a Department of Labor exemption. The Department of Labor has the authority to exempt small businesses from providing paid leave benefits under the FFCRA if it “would jeopardize the viability of the businesses as a going concern.” This exemption only applies for businesses with fewer than 50 employees. This exemption seems to apply only for employees seeking leave due to having to stay home to care for a child and not for employees quarantining themselves or experiencing symptoms. One of the following three conditions must then be met to claim the exemption: providing leave would result in the small business’ expenses and financial obligations exceeding available business revenues and cause the employer to cease operating at a minimal capacity; the absence of the employee requesting leave would entail a substantial risk to the financial health or operational capabilities of the employer because of their specialized skills, knowledge of the business or responsibilities; or there are not sufficient workers who are able, willing, and qualified, and who will be available at the time and place needed, to perform the labor or services provided by the employee requesting leave, and these labor or services are needed for the small business to operate at a minimal capacity.
An authorized officer of the business must document the determination that the criteria for the exemption are satisfied and retain such documentation for four years. The Department of Labor has instructed that no materials should be sent to them when seeking this exemption. Regulations are anticipated to be released in the future providing greater clarity on this exemption.
The Department of Labor has put out a helpful questions and answers document regarding other technical areas of the FFCRA such as calculating pay and number of employees.
The Americans with Disabilities Act (“ADA”) gives workers the right to request a reasonable accommodation which allows them to do their job. The ADA typically prohibits employers from taking employees’ temperatures as an unlawful medical examination. However, the Equal Employment Opportunity Commission has announced that employees can be tested as it is now job related and consistent with business necessity. What is not clear though is the question of what to do with workers with underlying conditions. Do they have to be segregated from the rest of the workforce? Can they demand to work from home while others are required to come into the office? These are the types of questions employers face as they reopen their businesses.
If the employee does not request a “reasonable accommodation,” the ADA does not mandate the employer to take action. If an accommodation is requested, the ADA regulations require an employer to consider whether there are reasonable accommodations which would eliminate or reduce the risk so it would be safe for the employee to return to the workplace. An employer may only bar an employee from the workplace if the facts support the conclusion that the employee poses a significant risk of substantial harm to him or herself that cannot be reduced or eliminated by reasonable accommodation. It may be best for employers to be more flexible during this unprecedented time and think about ways in which to reduce the risk and set up reasonable accommodations for those concerned about contracting the virus.
The ADA also mandates privacy of employee medical information. The CDC advises that if an employee is confirmed to have COVID-19, employers should inform fellow employees of their possible exposure to COVID-19 but maintain confidentiality as required by the ADA.
The previous sections have discussed the legal perils for businesses reopening. This Act focuses on what employers must do in the unfortunate event where they must lay off workers going forward.
The Workers Adjustment and Retraining Notification Act (“WARN Act”) typically applies to workers at companies with at least 100 employees who have worked at least 20 hours a week for more than 6 of the past 12 months. A covered employer must provide at least 60 days written notice prior to a plant closing or a mass layoff.
The 60-day notice is not required when a mass layoff is caused by unforeseeable business circumstances, natural disasters, and because of faltering companies. “As much notice as is practicable” must still be given. Although it is likely the case, it is unclear about whether COVID-19 will qualify as an exception to the 60-day notice. Two former Hooters workers recently filed a class action alleging the company violated the WARN Act. It is anticipated this case will fall within the unforeseen business circumstances exception, but employers should still be cognizant of the WARN Act notice requirements if layoffs are anticipated further down the road due to a slow recovery. Additionally, the WARN Act does not apply to temporary layoffs lasting less than six months. However, it will constitute a layoff where a WARN notice may be required if those furloughed employees are kept out of work for longer than six months.
Most states, as well as the Occupational Health and Safety Administration (“OHSA”), have implemented guidance on reopening. The city of Cedar Rapids, Iowa has also created a business reopening guide. Employers have a general duty under OHSA to maintain safe workplaces. However, this guidance put forth by OHSA is not a standard or a regulation and creates no new legal obligations. It is unclear how state-imposed protocols will be enforced. What is clear is that businesses not following the protocols may face some negative attention. Most recently, there was a report that Mark Cuban hired “secret shoppers” to go to retail stores and restaurants throughout Dallas. It was discovered that 96% of the businesses were non-compliant of Texas’s minimum standard health protocols.
There are discussions that the next stimulus bill will contain some sort of liability shield for businesses reopening. However, businesses should not be waiting for Congress to be their saving grace on this matter. While employers would be wise to review all laws they need to follow and update best practices to mitigate their chances of being sued for Negligence, assuming a broad liability shield is not passed, businesses should not view this period as a time to do the least amount of compliance necessary. There are varying opinions on the severity of this novel virus, but those companies that are being proactive in opening, in a safe and responsible, way have been praised by leaders in the business community and are seeing a correspondingly positive jump in their stock prices. Small businesses should take notice of this reaction and do everything they can to create a safe environment for their employees and customers, as it is becoming evident, especially through this pandemic, that those companies which are willing to adapt to the times are those that will be successful in the long-term.
This material is not intended, nor should it be construed or relied upon, as legal advice. The opinions expressed are those of the individual authority, they may not reflect the opinions of the firm. Your use of Day Rettig Martin, P.C. postings does NOT create an attorney-client relationship between you and Day Rettig Martin, P.C. or any of its attorneys. If specific legal information is needed, please retain and consult with an attorney of your own selection.
The Senate passed H.R. 748, which is titled as the CARES Act, on March 26 by a vote of 96-0. At the time of writing this, it sounds as if the House of Representatives have passed it as well. There are many issues discussed in this stimulus bill, but the most prevalent topic for small businesses is found in Section 1102 of the bill. It is titled “Paycheck Protection Program.”
The number of Americans filing for unemployment benefits jumped to 3.3 million for the week ending March 21 according to the Department of Labor. To put this figure into perspective, the number of unemployment claims filed for the week ending March 7 was 211,000, which was near a half-century low. Section 1102 of the CARES Act is meant to provide financing to small employers that retain their workforce during this historic economic slowdown.
Initial eligibility depends on the size of the employer. The loans would be available under 7(a) of the Small Business Administration for businesses with less than 500 employees. Sole proprietors, independent contractors, and self-employed individuals are also eligible to receive these loans. In evaluating the eligibility of a borrower for a covered loan, a lender is to consider whether the borrower was in operation on February 15, 2020 and had employees for whom the borrower paid salaries and payroll taxes.
The maximum loan amount is the lesser of a calculated amount and $10 million. The calculated amount results from the average monthly payroll costs for the 1-year period ending on the date the loan was made multiplied by 2.5. Payroll costs are defined under the bill as:
Notable exclusions of payroll costs include compensation of an individual employee in excess of an annual salary of $100,000, taxes imposed or withheld under chapter 21, 22, or 24 of the Internal Revenue Code during the time period of February 15, 2020 through June 30, 2020, qualified sick leave wages for which a credit is allowed, and qualified family leave wages for which a credit is allowed. Tony Nitti, a senior contributor with Forbes, provides an example to better illustrate calculating loan amounts permitted under this bill.
Rob’s Car Wash applies for a paycheck protection loan on May 1, 2020. The business has $1.2 million in payroll costs for the period May 1, 2019 through May 1, 2020, for a monthly average of $100,000. Rob’s car Wash is entitled to a loan the lesser of:
-$250,000 ($100,000 in average payroll costs * 2.5), or
-$10 million.
Allowable uses for loan proceeds during the covered period (February 15, 2020 – June 30, 2020) include payroll costs as defined above; costs related to continuation of group health care benefits during periods of paid sick, medical, or family leave, and insurance premiums; employee compensation; and payment of interest on any mortgage obligation, rent, utilities, and interest on any other debt obligations that were incurred before the covered period.
Section 1106 of the bill describes the loan forgiveness provisions. An eligible recipient shall be eligible for forgiveness of indebtedness in an amount equal to the sum of the following costs incurred and payments made during the covered period:
Mr. Nitti provides another example covering the forgiveness aspects of the bill.
In the first 8 weeks (covered period) after the business borrows the $250,000, the business pays $200,00 in payroll costs, mortgage interest, and utility payments. Rob’s Car Wash is eligible to have $200,000 of the $250,000 loan forgiven.
The bill also provides that any amount forgiven would be excluded from gross income for purposes of taxation. Assuming that the workers’ salaries aren’t materially cut, then the amount of forgiveness generally can be limited by dividing the number of employees employed during 2020’s covered period (February 15, 2020 – June 30, 2020) over the number of those employed during last year’s same time period. In other words, a greater amount of the loan will be forgiven if workers aren’t laid off. An exception exists if workers are rehired before June 30, 2020.
A recipient seeking loan forgiveness needs to submit to the lender:
The bill requires lenders to make a decision no later than 60 days after receiving the application for loan forgiveness. Even if your business’ circumstances make it such that the amount of forgiveness will be slim to none, the interest rate for the loan can’t exceed 4% and payment is deferred for a period between 6 months to a year. Guidance and regulations will be issued within 30 days of enactment of the bill which will provide greater clarity on some provisions.
The government is forcing employers to shut their doors in order to combat the coronavirus. This decision hurts small businesses in a tremendous way as they don’t have the cash reserves nor the financing alternatives that larger companies enjoy. The historic spike in unemployment claims reflects this. The CARES Act gives a chance for small businesses to survive during this difficult period while providing loan forgiveness options for those able to keep their workforce employed.
Small businesses, including sole proprietors, independent contractors, and self-employed individuals, could consult their accountants and lenders about how the CARES Act may benefit them. Merle Haggard’s “If We Make It Through December” song is reminiscent of today’s state. The government may have just given the small businesses a chance to make it through the summer, in which case they will reemerge stronger than ever once the inevitable recovery occurs.
This material is not intended, nor should it be construed or relied upon, as legal advice. The opinions expressed are those of the individual authority, they may not reflect the opinions of the firm. Your use of Day Rettig Martin, P.C. postings does NOT create an attorney-client relationship between you and Day Rettig Martin, P.C. or any of its attorneys. If specific legal information is needed, please retain and consult with an attorney of your own selection.
The Setting Every Community Up for Retirement Enhancement (“SECURE”) Act passed the House of Representatives in May of 2019 with bipartisan support. It was recently included in a 2020 appropriations bill that is anticipated to pass this week.
This proposed bill provides some benefits. It expands Section 529 education savings accounts to include such categories as apprenticeships and homeschooling expenses; expands multiple-employer plan arrangement for those outside of the trade associations and professional organizations; and increases the small-employer retirement plan startup cost credit. This will make it much easier for small businesses to offer retirement plans to their employees. The rest of the article will focus on IRA’s. Keep in mind that the IRA required minimum distribution rules discussed below also generally apply to all defined contribution plans (e.g., 401(k), profit-sharing, and 403(b) plans). Let’s start with the good news first.
Currently, an individual may only contribute to a traditional IRA for years in which he or she has compensation and will not attain the age of 70.5 before the end of the tax year. The SECURE Act would eliminate any age limit on the ability to contribute to a traditional IRA. People are living longer and work past age 70. They might as well be afforded the tax benefits afforded to everyone else as long as they are working. This does not affect Roth IRA’s since there has never been an age limit to contribute to a Roth IRA.
An IRA owner must begin taking Required Minimum Distributions by his “Required Beginning Date.” This is the later of the calendar year in which the plan participant retires, or April 1st of the calendar year in which the individual reaches age 70.5. If the account owner had not reached the age of 70.5 at the time of his death, the surviving spouse beneficiary may defer taking Required Minimum Distributions until such time as the deceased account owner would have reached age 70.5. The SECURE Act would increase the age for taking Required Minimum Distributions to 72. Again, this would make sense to have the retirement age triggers associated with these laws expand along with the participants’ increased lifespans. This does not affect Roth IRA’s either since there is no Required Minimum Distribution which must be taken while the Roth IRA owner is still alive.
Now we get to the bad. In short, it eliminates stretch IRA’s. One commenter summed it up as “changing the rules of the game in the eight inning.”
As the law currently stands, how distributions are distributed depends on the beneficiary’s relationship to the deceased and whether the participant died before or after his Required Beginning Date.
There are three options if the spouse is the designated beneficiary and the IRA owner died before the Required Beginning Date: 1)-The surviving spouse can elect to treat the IRA as the surviving spouse’s own IRA and defer distributions until his or her Required Beginning Date arrives. 2)-The surviving spouse can treat the IRA as an inherited one and take distributions over the surviving spouse’s life expectancy. This would defer distributions until the year in which the deceased IRA owner would have reached 70.5. 3)-Elect the 5-year rule in which the entire IRA balance must be distributed no later than December 31st of the 5th year after the IRA owner died.
There are two options if the spouse is the beneficiary and the IRA owner dies after the Required Beginning Date. 1)-Just as before, the surviving spouse can treat the IRA as the surviving spouse’s own. 2)-The surviving spouse can treat the IRA as an inherited one but must take distributions over the longer of the surviving spouse’s life expectancy or the deceased IRA owner’s life expectancy.
Distributions are handled differently if the deceased lists a non-spouse as the beneficiary. Treatment for this category depends on whether the IRA owner died before or after the Required Beginning Date. If before the Required Beginning Date, the non-spouse beneficiary can take distributions over his/her life expectancy. Additionally, the beneficiary may elect the 5-year rule. If after the Required Beginning Date, the non-spouse beneficiary must take distributions over the life expectancy of the younger of the beneficiary or the deceased IRA owner. If there are multiple designated beneficiaries, distributions will be taken over the oldest beneficiary’s life expectancy. It is prudent to split the IRA into multiple accounts if there is a large gap in age between the beneficiaries. This allows the younger beneficiary/beneficiaries to stretch their portion of the IRA over the course of their individual lives and not the life of the oldest beneficiary.
Since there are no Required Beginning Date for a Roth IRA, the post-death minimum distribution rules will always be applied as though the Roth IRA owner died before his Required Beginning Date, regardless of when he dies. Thus, the 5-year rule would be applied.
The current system permits traditional IRA owners to pass on large parts of their estates in a tax efficient manner to their beneficiaries. The beneficiaries may “stretch out” the distributions over a long period of time. This allows the distributions to be taxed at lower income rates. A lump sum distribution or installments over a period of 5 years may be appealing to some, but the potentially large amounts of distributions could be taxed at higher ordinary income rates.
The SECURE Act would require inherited IRA’s to be distributed in full within 10 years of the plan participant’s death. This rule would apply whether or not the plan owner died before or after his/her Required Beginning Date. There are some notable exceptions to this otherwise termination of the ability to stretch out distributions from IRA’s. The rules already in effect for surviving spouses would still apply. A child of the plan owner who has not reached the age of majority would be exempt from the 10-year rule to a certain extent. Once the child reaches majority, he/she shall cease to be an “Eligible Designated Beneficiary”, and the remaining amount shall be distributed within 10 years. Other Eligible Designated Beneficiaries include disabled individuals that meet the definition of I.R.C. § 72(m)(7) and chronically ill individuals under the definition of I.R.C. §7702(B)(c)(2).
The elimination of the ability of those who inherit IRA to spread the tax impact over a long time period has one practical impact: making Roth IRAs more appealing. The distributions from Roth IRAs are not taxed since the contributions were from after-tax income. Thus, the aforementioned adverse consequences for beneficiaries of the 10-year rule wouldn’t affect the designated beneficiaries of Roth IRAs in any way. If you are a young contributor hoping to transfer more of your retirement account to your beneficiaries and less to the government, it may be prudent to start contributing to a Roth IRA. Contribution limits are $6,000, or $7,000 for those 50 years or older.
The only possible limitation would be if you make too much money. In 2020 for single taxpayers, allowable contributions to Roth IRAs are reduced if income reaches $124,000. No contribution is allowed if income exceeds $139,000. This limit increases to $196,000 for married filing jointly taxpayers and is completely phased out once income exceeds $206,000. However, high-income earners may utilize a “backdoor” Roth IRA. Since traditional IRAs don’t have income limits for contributions, individuals can fund a traditional IRA with nondeductible contributions. They can then convert the account into a Roth IRA.
Your intended beneficiaries will thank you for funding your IRA through the Roth approach. The situation gets trickier for those that have already contributing large sums of money in their IRA accounts thinking their non-spouse beneficiary would be able to stretch out distributions for a long time. However, there are a couple of strategies to maximize the effectiveness of your estate plan strategy in anticipation of the SECURE Act.
First, you should consider the income tax brackets of beneficiaries. Consider designating IRA beneficiaries as those who typically fall into lower-income brackets to minimize overall tax liability. If one has both a traditional IRA and a Roth IRA, consider leaving the traditional IRA to a lower-income beneficiary. You could then leave the Roth IRA to a high-income beneficiary. For example, if the original plan was to provide for a child and his family but that child has since grown up and has a retirement plan of his own, consider naming a grandchild as the beneficiary. The grandchild would still be subject to the 10-year rule, but the grandchild would presumably be taxed at a lower rate.
Next, consider doing a Roth IRA conversion. The amount being converted is included in the IRA owner’s gross income in the year of conversion and taxed at the ordinary income rate. If you are a business owner or farmer, there are ways to reduce your taxable income in the year in which you choose to do the conversion in order to not take a large tax hit. For example, farmers may utilize section 179 on capital expenditures in order to create a farming loss in the year of the conversion. However, now may be a good time to bite the bullet and do a large conversion. The federal income tax rates may the lowest they will ever be. President Trump’s Tax Cuts and Jobs Act changed the individual income tax brackets and rates to effectively lower taxes at the ordinary income level.
An alternative to doing one, large IRA to Roth IRA conversion is to do a series of conversions. The advantages of doing so are illustrated by an example taken from a MarketWatch article which shows that a hypothetical single person with taxable income of $110,000 converting a $100,000 traditional IRA into a Roth IRA would cause about half the extra income from the conversion to be taxed at 32%. However, spreading the $100,000 conversion over two years would permit the income from the conversion to be taxed at a lower rate. This effectiveness of the multi-year conversion strategy can be even further bolstered by converting over many years when taxable income is lower. This could perhaps be done during a 5-10-year period after retirement.
Another option is to distribute tax-free RMDs directly to a charity, which is known as a Qualified Charitable Distribution. Alternatively, life insurance policies could be purchased with IRA distributions. These could then be held in trust and paid out over a longer period of time.
The SECURE Act may be beneficial to retirees and include other provisions designed to make retirement accounts more inclusive for those employed by small employers. However, as is often the case with major legislation, the good comes with the bad. The Act should not be welcomed by non-spouse beneficiaries. Contact the attorneys at Day Rettig Martin, P.C. to discuss modifying your estate plan strategy or creating one to efficiently pass your retirement accounts to the next generation.
The National Football League Players Association is the labor organization representing the professional football players in the National Football League. This union, like those Day Rettig Martin, P.C. represent, negotiate benefits through the use of collective bargaining agreements. There have been seven collective bargaining agreements between the NFL Players Association and the NFL team owners since the Association was first recognized in 1968.
The 2011 collective bargaining agreement expires after the 2020 season. Of particular importance in the next collective bargaining agreement are the pension amounts for players who retired before 1993. Current retirees have the NFL’s 401(k) plan, the NFL’s Annuit Plan, a severance plan, a health reimbursement account, and the option to continue on the NFL’s group medical and dental insurance. Pre-1993 players receive only one benefit – a pension. The pensions of the 4,000 vested players from the 1950s to 1993 have remained stagnant at $255 per month per credited season. The exception to this is the increases that were part of the 2011 collective bargaining agreement. These increased those pre- 1993 pension benefits by $108 per month for each year played. So, a 10-year NFL veteran who retired prior to 1993, receives approximately $43,560 pretax dollars per year at age 55.
An organization called Fairness for Athletes in Retirement (“FAIR”) brings awareness to educate to the pension inequality. Their website attempts to put things in perspective. They say a 10-year MLB veteran who played after 1993 receives a pension of approximately $200,000 a year at age 62. A 10-year NBA veteran who played after 1965 receives a pension of approximately $215,000 a year at age 62.
While awareness of this issue continues to grow, any solution remains murky. The Players Association has no obligation to represent retired players. Additionally, the NFL pension is underfunded. As of 2016, the pension plan was considered to be in endangered status because the funding percentage was less than 80%. The Retirement Board adopted a necessary funding improvement plan, which estimates the funding percentage to exceed the 80% threshold in 2021. The original funding improvement plan was adopted in 2011. Per the funding improvement plan, which is required by Federal law for plans that are less than 80% funded, the Retirement Board cannot accept a collective bargaining agreement or participation agreement that provides for a reduction in the level of contributions or a suspension of contributions with respect to any period of service.
The 2011 increases to pre-‘93 players caused the pension plan’s liabilities to balloon by more than $600 million. Partly because of this, and also due to the funding improvement plan, team owners tripled their contributions in 2013 to $300 million, followed by $305 million in 2014, and $266 million in 2015. The general funding issues of defined benefit plans may be why the NFL pushed to terminate the pension plan in the last round of negotiations.
So, while the pre-1994 retiree icons of the game set the wheels in motion for the record NFL revenues and salaries, there is no simple solution to the pension inequality that exists. It will be interesting to see what happens next year. As a football fan, I hope a resolution is reached so that there is no lockout.
These issues exemplify why every collective bargaining agreement is so important. Recently, our Firm has provided legal and employee benefit assistance to the General Mills union during negotiations of their collective bargaining agreement.
Please contact Attorney Joe Day regarding your labor and employment law needs.
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