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Vol. 78, No. 4, July 2024

FEATURED ARTICLES

Are Nonqualified Roth Distributions Terra Incognita?
Mike A. Harris, MPAS, CFP, CRPC, CRPS
Roth accounts are supposed to be easy. However, nonqualified Roth IRA distributions can be fiendishly complicated and employer Roth issues are mind boggling. With the SECURE Act 2.0 emphasizing employer Roths, advisors need a strong review of all Roth issues. Although SECURE 2.0 harmonized the required minimum distributions (RMD) rules, taxation of nonqualified distributions strongly favors Roth IRAs over employer Roth accounts. Advisors who understand the details can increase their assets under management (AUM) while serving the clients’ best interests.

Roth Distributions and Tax Avoidance on Social Security Benefits and Medicare Premiums
Davidson B. Gillette, PhD, CPA
Douglas K. Schneider, PhD, CPA
Many investors utilize Roth retirement accounts and Roth conversions in their financial planning due to the commonly referenced benefit of tax-free distributions. In this article, potentially valuable advantages of Roth distributions, including avoiding taxes on Social Security benefits and avoiding additional Medicare Part B and Part D premiums, are explored. How Congress could limit these advantages in the future, without violating the promise of no direct taxes on Roth distributions, is then examined. Both the current state of Roth advantages and potential future changes will be of interest to financial service professionals and their clients.

Financial Professionals and ADHD Clients: Promoting Positive Financial Changes
Christine Hargrove, PhD, MDiv
This article explores how financial professionals can support clients with attention-deficit/hyperactivity disorder (ADHD) who face challenges in managing their money and often avoid seeking professional financial advice. Specifically, financial professionals can use motivational interviewing and solution-focused questioning techniques in their client-facing interactions, thereby enhancing their value, attracting new clients, and bolstering their career stability. This article explains key concepts and techniques of motivational interviewing and solution-focused questioning, provides research supporting their use with this population, and illustrates these techniques through a hypothetical case study of a client with ADHD.

DEPARTMENTS

Editor’s View
Let Uncle Sam Help Pick Up the Tab for Your Client’s New 401(k) Plan
Kenn Beam Tacchino, JD, LLM
If a client is thinking about adding a 401(k) plan, it may behoove them to know that there are four key tax credits that partially reimburse a small-business employer for starting and funding the plan. These include: the start-up costs tax credit, the employer contributions tax credit, the automatic enrollment tax credit, and the military spouse participation tax credit. Three of these were enacted under the SECURE Act 2.0, so your client may not be aware they exist. All of these options should be perceived as a way in which the federal government is assuming some of the costs associated with sponsoring a 401(k) plan. Policymakers are happy to cover retirement-plan costs because they want to encourage more workers to be sheltered by plans.

Economics & Investment Management
Eight Things to Know about Municipal Bonds
Kenneth Washer, DBA, CFA, CFP
Melissa Woodley, PhD, CFA
Municipal bonds, which are also known as muni bonds or simply munis, are commonly issued by state and local governments. Interest paid on munis is generally tax exempt which benefits investors in high tax brackets. Individuals should only own munis in a taxable account so they can capture the tax-exempt benefit. They have very low default/credit risk due to either a high credit rating and/or a third-party guarantee. Capital gains associated with these bonds are taxable unless the de minimis rule applies. Tax-exempt interest payments may also trigger the alternative minimum tax (AMT). Investors can purchase munis directly, or indirectly through a fund.

Financial Gerontology
A Brief Guide to Financial Gerontology and the Longevity Economy
John N. Migliaccio, PhD, RFG, FGSA, MEd
The past decade has seen the emergence of a demographic “longevity revolution” reflecting global population aging and recognition of the economic ramifications of its current and future growth in the attention to the development of a “longevity economy” that accompanies it. This phenomenon will continue for decades, and will evolve as generations, societies, economies, cultures, families, and individuals negotiate dynamic change in every aspect of life. At the same time as we look ahead at this evolution, it is helpful to briefly review some of the foundational concepts of financial gerontology and connect these to the broader context of financial services professionals and the longevity economy.

In the Client’s Best Interest
A Better Way to Buy Life Insurance
Richard M. Weber, MBA, CLU, AEP (Distinguished)
Life insurance has classically provided financial security to millions of families to offset the financial loss due to the premature death of a breadwinner. Life insurance for this purpose can be as simple as a 10-year term policy providing for a temporary need, or the more complex indexed universal life (IUL) that has become one of the most popular cash value policies purchased in the last 15 years. However, policy sales have begun to shift away from a focus on death benefits toward providing tax-free retirement income. When premium financing is added to the inherent complexity of IUL, such plans have been failing at an alarming rate. The result can end in time-consuming and costly litigation against agents and their insurance companies.

Insurance & Risk Management
When It Is Not Greek to You, You Can Sense Opportunity
David F. Pierce, MSFS, MSM, MA, AEP, CLF, ChFC
CLU, Certified Financial Fiduciary
There is a well-known idiom uttered when someone doesn’t understand: It’s all Greek to me! The Greek language has two words for the English word time. One is a verb; the other is a noun. Advisors know the noun version well, but for clients, the verb version is more important because it means sensing opportunity. How confident are clients in making decisions? There are difficult questions without easy answers in financial planning. Some things might be all Greek to clients, but success can come when advisors focus on education and professionalism.

Social Security Planning
Raising the Contribution and Benefit Base
Bruce D. Schobel, FSA, MAAA, CLU, CEBS
For almost four decades, Social Security’s board of trustees has been reporting—annually and consistently—that (1) the program’s income and outgo are out of close actuarial balance, and (2) the trust funds are anticipated to be depleted sometime in the 2030s. Currently, Social Security reform is in hibernation. However, reform is inevitable and one popular idea is to increase the taxable wage base. We discuss this option.