As a wealth management consultant and professor for over a decade, it is that time again to file our taxes. With tax filings, we must document our income, expenses, deductions, exemptions, retirement contributions and so forth. Some of us must file our taxes for partnerships or corporations.

Wealth management comprises various subjects including: Economics, Banking, Investments, Risk Management, Investment/Asset Management, Estate Succession, Taxation, and Trust Planning and Retirement Planning.

Many of us simply receive W-2 and employment income and traditional company benefits primarily, but others who are self-employed or contractors are doing their best to utilize the system to declare income, pay for insurance, take mortgage deduction and so forth.

The good news is that that the tax code has become more amicable to the self employed over the last decade. Self employed individuals are able to write off or deduct more of their health care expenses while also setting aside more money pre-tax into their self directed retirement accounts.

Here are some thoughts related to Wealth Management 2012

Investments: While we are not sure what will happen with taxes going forward, several of today’s tax rates on income such as dividends and long-term capital gains are reasonable. If they go up, many people may sell out of dividend stocks or other related holdings. Dividend stocks have been particularly popular for retirees and those who don’t want CDs with the rates so low.

Thus, dividend stocks have been the alternative for income producing investments because the tax rates are at 15%. Overall, if income taxes go up on dividend stocks at this time, the hardest hit may be seniors and those who live on a fixed income.

Retirement and Education: In light of the present situation, we hope you are able to maximize your contributions to your retirement before April 15th each year. Also, setting aside money in a 529 plan is a good way to fund a child or grandchild’s education for the future. The annual gifting rules and estate and gift tax rules allow you to gift cash to others during life or at death. Therefore, now may be a good time to consider large gifts due to the generous estate & gift tax exemption for 2012.

Estates and Succession: As for estate taxes, those rates right now are the most generous ever. However, the large exemption may be reduced again to the Clinton era rates if nothing is done by Congress before 2013.

The other major estate management issues are succession documents. Do you have a valid will? Do you have health care directives? Have you considered limited powers of attorney for your financial affairs or health care affairs? Have you arranged for the guardianship of your children if something happens to you? All of these issues can be dynamic and very important?

Insurance: Other topics are risk management related. Do you have proper life, health, and home insurance? Have you considered an umbrella policy or disability policy? Again, protecting yourself and your family in this way is imperative. However, you must remember that insurance contracts have beneficiaries and that each policy can have primary beneficiaries or secondary beneficiaries. Further, these assets are not controlled by your will and the beneficiary receives regardless of what your will says. Providing the policy numbers and information to your loved ones may also be a good exercise.

Banking and Investment Accounts: Additionally, if you have bank or brokerage accounts, you should consider listing your spouse or loved one as person who receives the account upon death. TOD “Transfer on Death” and POD “Payable on Death” accounts are typical choices for your accounts and this allows a loved one to have access to cash immediately if something happens to you. Sometimes, rolling over or consolidating accounts is a great exercise so as to help create a better view of the totality of your investments.

Taxation: The IRS has a tax tips section which is interesting and resourceful. Moreover, there are many great tax software programs out there to chose from that you can use privately on your computer. Thus, with good information coming from the Treasury Department and quality software, all of us have a fair opportunity to get our tax paperwork done on time.

Economics: Keep in mind that there has been a number of economic cycles in the last 20 years in the USA and Internationally. That means that we should all keep an eye on our risk tolerance and our investing time horizon. When you are getting closer to retirement, you should be moving out of riskier investments and into more stable investments or stocks with less volatility if possible. Other related problems such as an election year and global debt crisis issues domestically and abroad are also now part of the macro-economic effects.

In the end, most people are concerned with financial security. During our earning years, all of us want to work in a labor of love, earn what we can, protect our children and retirement, and worry about taxes later. In the end, the key is doing what you want to do, and have the experts handle your legal, tax and wealth management for you.

*No investment, legal or tax advice is intended to be given herein. Please see a licensed professional before making any important decision.

Fixed income annuity contracts are a great hedge against longevity risk that can help provide retirement income sufficiency in an increasingly uncertain environment. But even with a fixed annuity, income sufficiency is a tricky goal to attain when you’re walking uphill against inflation.

Since a $100,000 annuity pays the same $650/month in January 2032 as it does in January 2012, it must be paired with a strategy that hedges against inflation. Writing for Forbes earlier this month, Stephen Horan, PhD, discussed the lesser-known cousin of the fixed annuity, the inflation-protected annuity.

An inflation-protected annuity is generally a “fixed” annuity that includes a component that ratchets up payments each year to account for inflation. There are two general types of inflation protected annuities: (1) those that account for inflation by increasing payments by a fixed percentage (e.g., 4%) each year to account for inflation; and (2) those with a variable increase that is tied to an inflation indicator like the Consumer Price Index (CPI).

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of annuities in Advisor’s Journal, see Annuities: They Get No Respect (CC 11-120), Annuity Respect: Earning It! (CC 11-150), & How Much to Allocate to Annuities: A Critical Analysis (CC 11-109).

When your clients roll over a retirement account into an annuity, stay alert. They could lose significant tax benefits if they don’t document their investment in the contract.

Gains realized on surrender of an annuity are taxed as ordinary income, but the entire amount received on surrender might not be taxed, since a taxpayer is entitled to receive their investment in the contract back tax-free.

Keeping track of investment in the contract is simple enough when a person pays premiums out a checking account into the annuity—the total amount of the premiums will constitute investment in the contract. But when a rollover is made from a pre-tax retirement account like an IRA, things get more complicated, and documenting investment in the contract is essential to preserve its tax benefit.

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of annuities  in Advisor’s Journal, see Annuity Respect: Earning It! (CC 11-150), IRS Streamlines Partial Exchanges of Annuities (CC 11-153), and GAO Report Touts Annuities in Uncertain Retirement Environment (CC 11-141).

For in-depth analysis of the taxation of distributions from an annuity, see Advisor’s Main Library: A—Amounts Received As An Annuity & B—Amounts NOT Received As Annuities.

Would you prefer to be viewed by your clients and prospects as a salesperson or an advisor? Phrased another way, what are the implications to your professional status and business of presenting yourself as one or the other?

In marketing and sales, the point is made ad nauseum that “perception is reality,” and that “emotion sells.”  At best, this is a rather bleak assessment of human intellectual functioning and motivational behavior.  At worst, it speaks to the vulnerability and susceptibility of our clients and prospects to the illusion of credibility and the techniques of persuasion.

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of advisor-client relationships in Advisor’s Journal, see Advisors are from Mars, Clients are from Venus (CC 11-128).

As corporate employers shift from defined benefit to defined contribution plans, the burden of ensuring retirement income sufficiency has shifted from employer to employee—and most employees are ill-equipped to handle the responsibility.

About 50% of private-sector employees have access to a retirement plan; but access to defined benefit plans has dropped off significantly. In 1980, 83% of those employees were covered by a defined contribution plan. But by 2008, that number had dropped to 31%, leaving about 85% of employees fending for their own retirement security.

In response to employees’ increasing retirement worries, insurance companies and financial services firms have developed new financial products and plan features providing income sufficiency for participants in defined contribution plans.

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of retirement studies in Advisor’s Journal, see How Much to Allocate to Annuities: A Critical Analysis (CC 11-109) & How Are IRA Owners Investing Their Money? (CC 11-112).

For in-depth analysis of qualified plans, see Advisor’s Main Library: A—General Introduction to Qualified Plans.

Traditional IRAs allow deferral of income tax on contributions, but that deferral ends when assets are withdrawn from the account. But in recent years Congress has given individuals the option of converting a traditional IRA accounts to a Roth IRA, paying income tax on the amount rolled over into the Roth. In contrast to a traditional IRA, withdrawals of both principal and income can be made tax-free.

The attraction of Roth conversion is muted by the fact that the taxpayer has to pay tax on the lump sum that’s rolled over into the Roth. But what if you could convert a traditional IRA to a Roth IRA without paying income tax on the conversion?

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of Roth conversion in Advisor’s Journal, see Small Business Bill Extends the Roth Restructure Window (CC 10-64).

For in-depth analysis of Roth IRAs, see Advisor’s Main Library: G—Roth IRAs.

Want some free marketing material for your annuities business? Look no further than the U.S. Government Accountability Office (GAO), which recently released a report touting annuities for their ability to provide retirement income sufficiency in an increasingly uncertain environment.

The GAO recommends that retirees delay their receipt of Social Security Benefits and either draw down savings and purchase an annuity or select annuity options from their defined benefit (DB) plan instead of electing to receive their benefits in a lump sum.

According to the GAO, the shift from defined benefit pension plans to defined contribution (DC) plans like 401(k)s necessitates a heightened focus on annuities and other options for guaranteeing income during retirement . And even if workers are saving more for retirement through their DC plans, they are still at greater risk than employees with DB pensions.

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of annuities in Advisor’s Journal, see How Much to Allocate to Annuities: A Critical Analysis (CC 11-109) & Drama Over the “Drawbacks” of Annuities (CC 11-62).

For in-depth analysis of the taxation of annuities, see Advisor’s Main Library: A—Amounts Received As An Annuity & B—Amounts NOT Received As Annuities.

Why is This Topic Important to Wealth Managers? This blogticle discusses one avenue for retirement planning solutions for small businesses. Wealth managers who have small business clients may consider a discussion on the automatic payroll deduction IRAs as one simple way to help employees save for retirement.

A payroll deduction individual retirement account (IRA) is one simple way for businesses to give employees an opportunity to save for retirement. The program is easy to implement; the employer sets up the payroll deduction IRA program with a bank, insurance company or other financial institution, and then the employees choose whether and how much they want deducted from their paychecks and deposited into the IRA. Depending on the IRA service provider, some employees may also have a choice of investments depending on the IRA provider. Wealth managers can add value to employees and employers by, not only establishing a plan, but by also working with employees to help them manage their IRAs.

Under a payroll deduction IRA, the employee makes all of the contributions, thus there are no employer contributions. By making regular payroll deductions, employees are able to contribute smaller amounts each pay period to their IRAs, rather than having to come up with a larger amount all at once.

One advantage of these accounts is that there is little administrative cost and no annual filings with the government. Moreover, businesses of any size can participate as there is no requirement that an employer have a certain number of employees to set up a payroll deduction IRA.

Another element that makes the program attractive to some small businesses is that the program will not be considered an employer retirement plan subject to Federal requirements for reporting and fiduciary responsibilities as long as the employer keeps its involvement to a minimum.

Here’s how the IRAs generally work: The employer sets up the payroll deduction IRA program with a financial institution, such as a bank, mutual fund or insurance company. The employee establishes either a traditional or a Roth IRA (based on the employee’s eligibility and personal choice) with the financial institution and authorizes the payroll deductions. The employer withholds the payroll deduction amounts that the employee has authorized and promptly transmits the funds to the financial institution. After doing so, the employee and the financial institution are responsible for the amounts contributed.

Generally however, the employer needs to remain neutral with respect to the IRA provider. It cannot negotiate with an IRA provider to obtain special terms for its employees, exercise any influence over the investments made or permitted by the IRA provider, or receive any compensation in connection with the IRA program except reimbursement for the actual cost of forwarding the payroll deductions.

Commonly, any employee who performs services for the business (or “employer”) can be eligible to participate. The decision to participate is left exclusively up to the employee. The employees should understand that they have the same opportunity to contribute to an IRA outside the payroll deduction program and that the employer is not providing any additional benefit to employees who participate.

Employees’ tax-deferred contributions are generally limited to $5,000 for 2011. Additional “catch-up” contributions are permitted for employees age 50 or over. This special catch-up amount is currently limited to $1,000 per year.

Tomorrow’s blogticle will continue to discuss simple wealth management solutions.

We invite your opinions and comments by posting them below, or by calling the Panel of Experts.

A new academic study on the effect of increased life-spans on savings rates confirms old suspicions and raises some interesting new questions.

The conclusions reached by Optimal Retirement and Saving with Increasing Longevity, by David E. Bloom, David Canning, and Michael Moore are simple enough but need some unpacking: “[A] higher level of wages leads to earlier retirement and increasing savings rates. On the other hand an increase in life expectancy leads to an increase [in] the retirement age, but less than proportionately, while reducing savings rates.”

This result emphasizes the importance of planning for middle-income families. Without a solid plan, many will be stuck working many more years than they hoped or planned.

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of retirement values in Advisor’s Journal, see Appealing to Your Affluent Clients’ Retirement Planning Values (CC-11-42).

For in-depth analysis of investment planning for affluent clients, see Advisor’s Main Library: Investment Planning.

Why is this Topic Important to Wealth Managers? In this edition we present a discussion of the 60 day rollover provisions for retirement accounts. Sometimes the transaction does not always go as planned. Thus wealth managers should be aware of unique situations that apply to traditional planning circumstances.

Can a widow rollover, past the 60 day statutory window, distributions from an employee trust to an IRA on behalf of a husband who passed away mid-transaction? The IRS has recently said no. [1]

In a private letter ruling issued last week the Service determined that since the widow had funds in a joint account with her husband who later passed away that she was precluded from rolling over that amount to a tax advantaged arrangement in her name.

Widow’s husband received a distribution from an Employee Retirement Plan totaling Amount X. The Widow asserts that the failure to accomplish a rollover within the 60-day period prescribed by section 402(c)(3) was due to the fact that her husband entered the hospital and passed away during the 60-day period.

The husband had ended his employment earlier in the year. Unbeknownst to him, the plan had a “cash out” provision that mandated complete distribution of plan assets upon the participant’s attainment of 65 years of age. The husband then received a check, and initiated arrangements to move the funds to an individual retirement account in order to maintain the funds in a tax free vehicle. In the meantime, the husband had deposited the funds into a joint account with his wife. Between the time of the distribution from the plan and his scheduled rollover, the husband became ill and passed away. The widow sought to complete the rollover intended by her husband.

Generally, if any portion of the balance to the credit of an employee in a qualified trust is paid to the employee in an eligible rollover distribution, and the distributee transfers any portion of the property received in such distribution to an eligible retirement plan, then such distribution (to the extent transferred) shall not be includible in gross income for the taxable year in which paid. [2]

The Code states that such rollover must be accomplished within 60 days following the day on which the distributee received the property. An individual retirement account (IRA) constitutes one form of eligible retirement plan. [3]

The Code however allows a waiver by the Secretary where the failure to waive such requirement would be against equity or good conscience, including casualty, disaster, or other events beyond the reasonable control of the individual subject to such requirement.[4]

Moreover, the Code provides that if any distribution attributable to an employee is paid to the spouse of the employee after the employee’s death, the preceding provisions of this subsection will apply as if the spouse was the employee. [5]

In addition, when determining whether to grant a waiver of the 60-day rollover requirement pursuant to section 402(c)(3) of the Code, the Service will consider all relevant facts and circumstances, including: (1) errors committed by a financial institution; (2) inability to complete a rollover due to death, disability, hospitalization, incarceration, restrictions imposed by a foreign country or postal error, (3) the use of the amount distributed (for example, in the case of payment by check, whether the check was cashed); and (4) the time elapsed since the distribution occurred.[6]

The Service held in summary that because the husband is now deceased, it is impossible for him to complete the proposed transaction. Since the amount was received by the husband from the retirement plan prior to his death, his wife (widow) was precluded from rolling the funds over into a tax-deferred account in her name under section 402(c)(9) of the Code.

Tomorrow’s blogticle will discuss tax and market issues relating to wealth management.

We invite your questions and comments by posting them below, or by calling the Panel of Experts.

[2] IRC Section 402(c).

[3] IRC Section 402(c)(3)(A).

[4] IRC Section 402(c)(3)(B).

[5] IRC Section 402(c)(9).

[6] See Rev. Proc. 2003-16, 2003-4 I.R.B. 359, (January 27, 2003).