Selling a home

Should I sell my house? 3 key financial considerations

Deciding to sell your home is an important financial decision.  These 3 financial considerations can help you evaluate your situation to determine if now is a good time for you to sell.

  1. Your home’s worth
  2. The costs of selling a house
  3. The tax implications of selling a house

An Ameriprise financial advisor will help evaluate the financial impacts of selling your home based on your financial goals and priorities.

1. Your home’s worth

The value of a house can change over time. Whether you purchased your home decades ago or last year, one of the first steps to take when considering selling your home is to evaluate how much your house is worth in the current housing market. Here are three common approaches:

  • Research real estate websites. Find out how much similar homes in your area have sold for. Many websites can also give you a rough estimate of how much your home is worth.
  • Consider an appraisal. A formal appraisal will provide you with a more accurate value of your house based on comparable home sales in the area.
  • Work with a real estate agent. Real estate agents will help determine an appropriate listing price for your home. Look online or ask for referrals to realtors who have experience in your neighborhood.

What is the difference between a seller’s market vs buyer’s market

Factors such as such as seasonality and local economic conditions affect the value of your house.

These factors can create what are typically referred to as buyer’s and seller’s markets, normal parts of the housing market cycle which can impact your selling price.

  • A seller’s market occurs when there are more prospective buyers than there are homes for sale. When housing inventory is low, prices tend to be higher. As a seller, you may be able to get more money for your property or sell it faster than you would in a buyer’s market.
  • In a buyer’s market, an abundant housing inventory provides buyers with more housing options and an advantage in negotiating the purchase price. Your house could take longer to sell given buyers have more options. There also may be more competition from other home sellers in your price range.

Seller’s market

  • More interested buyers than homes for sale can lead to bidding wars.
  • Your home may sell at a higher price.
  • You may be able to sell your home quicker.

Buyer’s market

  • Increased housing inventory means more options for buyers.
  • The average property spends more time on the market. 
  • It’s important to price your home competitively.

When is the best time to sell a house?

The “best time” to sell a house may be a misnomer. When to sell is determined by a number of factors including personal finances, needs and the market. However, knowing the better times to sell a house may help you sell at a higher price. Zillow cites April through July as offering better selling opportunities, depending on location. December through February tend to be more sluggish months for home sales in most markets due to cold weather and the holiday season.1

In many housing markets, listings, sales and buyer activity peak in spring and summer.

Winter months may see lower inventory and fewer active buyers.

This doesn’t mean you should wait to sell your home until the market is in your favor or that you can’t list your house in January. By taking into account housing market conditions and seasonality, you can set realistic expectations for a selling price and time on the market.

2. Costs of selling a house

From cleaning to de-cluttering to painting, a lot can go in to getting your house in shape to sell. In addition to preparation costs before the home is shown to prospective buyers, expect to pay the following:

  • Realtor fees: The typical real estate agent’s commission is 2.5% – 3% of the home’s selling price, which means that the combined real estate agent fees for both the seller’s agent and the buyer’s agent fall within the 5% – 6% range. It’s not uncommon for the seller to pay the commission for both agents.
  • Closing costs: As a seller, expect to pay closing costs between 1% – 3% of the house price. This typically includes the home inspection, appraisal and title insurance costs.
  • Repair costs: Sometimes after the inspection, the buyer may ask you to make repairs before they purchase the home. As the seller, you don’t have to agree to make the repairs, but if you don’t, the buyer may not want to go through with the sale. Sometimes sellers list their home in “as-is” condition — meaning they are offering the home in its current condition and will make no repairs — which may result in fewer interested buyers.
  • Concessions: If you’d prefer not to make the inspection repairs yourself, the buyer may accept other concessions instead. For example, common concessions include a lower purchase price or paying some of the buyer’s closing costs.

The bottom line: As a seller, you should be prepared to pay costs up to 10% of the home price.

3. Tax implications of selling a house

Will you owe taxes on the profit from your home sale? The answer depends on several factors, such as how long you owned the house and whether or not it was your primary residence.

Capital gains on a home sale

When you sell property or other investments and make a profit, capital gains taxes come into play.

If you sell your house within a year of buying it, the tax treatment of the profit from the sale will be a short-term capital gain. This means you’ll have to pay normal income tax rates on the profit.

If you owned the home for more than one year, the tax treatment of the profit will be a long-term capital gain., This will likely be much lower than your regular income tax rate.

Avoiding capital gains tax with a Section 121 exclusion

You may be able to avoid paying capital gains taxes via a Section 121 exclusion, more commonly referred to as a primary residence exclusion. To claim the exclusion, generally the house must have been your primary residence for 24 months in the past five years before a sale.  

The IRS allows single tax filers to exclude up to $250,000 of capital gains on a house through the primary residence exclusion. For example, if you’re single and bought your house for $600,000, lived in it the required amount of time, aren’t subject to other limitations, and sold it for $850,000, you won’t have to pay capital gains tax on the $250,000 profit. For married couples filing jointly, the exclusion amount is $500,000. Additional restrictions or limitations on the amount excluded may apply in certain circumstances.

Capital gains on a rental property

Because full-time rental properties are not eligible for the Section 121 exclusion, owners of full-time rental or investment properties will typically pay capital gains taxes.

However, with a 1031 exchange, owners can sell their investment property and immediately buy a “like-kind” property (normally, a similar property that costs the same amount or more) without paying capital gains tax on the profit from the first property. The caveat: A 1031 exchange is a tax deferral, not an exemption, so you will eventually have to pay taxes on profits from the sale. 1031 exchanges generally require the use of a qualified intermediary to facilitate the exchange and ensure compliance with the various tax requirements.

What happens if I need to sell my home at a loss?

Nobody buys a house planning to sell it at a loss, but based on market conditions or personal needs, you may find yourself in a situation you didn’t expect.

A loss from the sale of a primary residence is not tax-deductible. Because the IRS considers a house that you live in as a “personal-use property,” any loss you incur from the sale of the home is not deductible as a capital loss.

However, if you sell your rental property at a loss, you may be able to claim these losses as income tax deductions. Check with a tax professional if you find yourself in this situation.

For more information about the tax implications of selling a home consider IRS Publication 523 (Selling Your Home) or consulting a tax advisor.  

Discuss selling your home with a financial advisor

There are many financial factors to consider before you decide to put your house on the market. It’s a good idea to get help from an Ameriprise financial advisor, who will provide you with 1:1 financial advice based on your goals and needs. Doing so can help you feel more confident, connected and in control of your financial life.

Disclosures

1Source: https://www.zillow.com/sellers-guide/best-time-to-sell/

Ameriprise Financial cannot guarantee future financial results.

Ameriprise Financial, Inc. and its affiliates do not offer tax or legal advice. Consumers should consult with their tax advisor or attorney regarding their specific situation.

Investment advisory products and services are made available through Ameriprise Financial Services, LLC, a registered investment adviser.

Ameriprise Financial Services, LLC. Member FINRA and SIPC.

Selling a home

Should I sell my house? 3 key financial considerations

Deciding to sell your home is an important financial decision.  These 3 financial considerations can help you evaluate your situation to determine if now is a good time for you to sell.

  1. Your home’s worth
  2. The costs of selling a house
  3. The tax implications of selling a house

An Ameriprise financial advisor will help evaluate the financial impacts of selling your home based on your financial goals and priorities.

1. Your home’s worth

The value of a house can change over time. Whether you purchased your home decades ago or last year, one of the first steps to take when considering selling your home is to evaluate how much your house is worth in the current housing market. Here are three common approaches:

  • Research real estate websites. Find out how much similar homes in your area have sold for. Many websites can also give you a rough estimate of how much your home is worth.
  • Consider an appraisal. A formal appraisal will provide you with a more accurate value of your house based on comparable home sales in the area.
  • Work with a real estate agent. Real estate agents will help determine an appropriate listing price for your home. Look online or ask for referrals to realtors who have experience in your neighborhood.

What is the difference between a seller’s market vs buyer’s market

Factors such as such as seasonality and local economic conditions affect the value of your house.

These factors can create what are typically referred to as buyer’s and seller’s markets, normal parts of the housing market cycle which can impact your selling price.

  • A seller’s market occurs when there are more prospective buyers than there are homes for sale. When housing inventory is low, prices tend to be higher. As a seller, you may be able to get more money for your property or sell it faster than you would in a buyer’s market.
  • In a buyer’s market, an abundant housing inventory provides buyers with more housing options and an advantage in negotiating the purchase price. Your house could take longer to sell given buyers have more options. There also may be more competition from other home sellers in your price range.

Seller’s market

  • More interested buyers than homes for sale can lead to bidding wars.
  • Your home may sell at a higher price.
  • You may be able to sell your home quicker.

Buyer’s market

  • Increased housing inventory means more options for buyers.
  • The average property spends more time on the market. 
  • It’s important to price your home competitively.

When is the best time to sell a house?

The “best time” to sell a house may be a misnomer. When to sell is determined by a number of factors including personal finances, needs and the market. However, knowing the better times to sell a house may help you sell at a higher price. Zillow cites April through July as offering better selling opportunities, depending on location. December through February tend to be more sluggish months for home sales in most markets due to cold weather and the holiday season.1

In many housing markets, listings, sales and buyer activity peak in spring and summer.

Winter months may see lower inventory and fewer active buyers.

This doesn’t mean you should wait to sell your home until the market is in your favor or that you can’t list your house in January. By taking into account housing market conditions and seasonality, you can set realistic expectations for a selling price and time on the market.

2. Costs of selling a house

From cleaning to de-cluttering to painting, a lot can go in to getting your house in shape to sell. In addition to preparation costs before the home is shown to prospective buyers, expect to pay the following:

  • Realtor fees: The typical real estate agent’s commission is 2.5% – 3% of the home’s selling price, which means that the combined real estate agent fees for both the seller’s agent and the buyer’s agent fall within the 5% – 6% range. It’s not uncommon for the seller to pay the commission for both agents.
  • Closing costs: As a seller, expect to pay closing costs between 1% – 3% of the house price. This typically includes the home inspection, appraisal and title insurance costs.
  • Repair costs: Sometimes after the inspection, the buyer may ask you to make repairs before they purchase the home. As the seller, you don’t have to agree to make the repairs, but if you don’t, the buyer may not want to go through with the sale. Sometimes sellers list their home in “as-is” condition — meaning they are offering the home in its current condition and will make no repairs — which may result in fewer interested buyers.
  • Concessions: If you’d prefer not to make the inspection repairs yourself, the buyer may accept other concessions instead. For example, common concessions include a lower purchase price or paying some of the buyer’s closing costs.

The bottom line: As a seller, you should be prepared to pay costs up to 10% of the home price.

3. Tax implications of selling a house

Will you owe taxes on the profit from your home sale? The answer depends on several factors, such as how long you owned the house and whether or not it was your primary residence.

Capital gains on a home sale

When you sell property or other investments and make a profit, capital gains taxes come into play.

If you sell your house within a year of buying it, the tax treatment of the profit from the sale will be a short-term capital gain. This means you’ll have to pay normal income tax rates on the profit.

If you owned the home for more than one year, the tax treatment of the profit will be a long-term capital gain., This will likely be much lower than your regular income tax rate.

Avoiding capital gains tax with a Section 121 exclusion

You may be able to avoid paying capital gains taxes via a Section 121 exclusion, more commonly referred to as a primary residence exclusion. To claim the exclusion, generally the house must have been your primary residence for 24 months in the past five years before a sale.  

The IRS allows single tax filers to exclude up to $250,000 of capital gains on a house through the primary residence exclusion. For example, if you’re single and bought your house for $600,000, lived in it the required amount of time, aren’t subject to other limitations, and sold it for $850,000, you won’t have to pay capital gains tax on the $250,000 profit. For married couples filing jointly, the exclusion amount is $500,000. Additional restrictions or limitations on the amount excluded may apply in certain circumstances.

Capital gains on a rental property

Because full-time rental properties are not eligible for the Section 121 exclusion, owners of full-time rental or investment properties will typically pay capital gains taxes.

However, with a 1031 exchange, owners can sell their investment property and immediately buy a “like-kind” property (normally, a similar property that costs the same amount or more) without paying capital gains tax on the profit from the first property. The caveat: A 1031 exchange is a tax deferral, not an exemption, so you will eventually have to pay taxes on profits from the sale. 1031 exchanges generally require the use of a qualified intermediary to facilitate the exchange and ensure compliance with the various tax requirements.

What happens if I need to sell my home at a loss?

Nobody buys a house planning to sell it at a loss, but based on market conditions or personal needs, you may find yourself in a situation you didn’t expect.

A loss from the sale of a primary residence is not tax-deductible. Because the IRS considers a house that you live in as a “personal-use property,” any loss you incur from the sale of the home is not deductible as a capital loss.

However, if you sell your rental property at a loss, you may be able to claim these losses as income tax deductions. Check with a tax professional if you find yourself in this situation.

For more information about the tax implications of selling a home consider IRS Publication 523 (Selling Your Home) or consulting a tax advisor.  

Discuss selling your home with a financial advisor

There are many financial factors to consider before you decide to put your house on the market. It’s a good idea to get help from an Ameriprise financial advisor, who will provide you with 1:1 financial advice based on your goals and needs. Doing so can help you feel more confident, connected and in control of your financial life.

Disclosures

1Source: https://www.zillow.com/sellers-guide/best-time-to-sell/

Ameriprise Financial cannot guarantee future financial results.

Ameriprise Financial, Inc. and its affiliates do not offer tax or legal advice. Consumers should consult with their tax advisor or attorney regarding their specific situation.

Investment advisory products and services are made available through Ameriprise Financial Services, LLC, a registered investment adviser.

Ameriprise Financial Services, LLC. Member FINRA and SIPC.

Buying a home

home mortgage considerations and more

Whether you’re purchasing your first house, moving to a larger space, downsizing, or considering a second home or cabin, buying a new home is often both a financial goal and a major event in your life. A house is one of the biggest investments you’ll ever make and one you’ll probably live with (and in) for years to come. Our home buying tips  will help you get started.

Begin the home buying process

First, consider the features that are important to you, including the neighborhood, size and style of home, quality of schools, property taxes and proximity to shopping and work. Next, determine how much house you can comfortably afford and consider how your expenses will change with home ownership.

Investigate financing and home mortgage options

  • Order your credit report and check it for errors
  • Evaluate the amount you’ll need for a down payment
  • Compare various home mortgage terms and rates and consider which type of mortgage will work best for you. Mortgages are generally available with fixed or adjustable rates and terms of 15 to 30 years.
  • Obtain prequalification or preapproval for a mortgage

Understand the benefits of using a real estate agent

An agent can guide you through the process of buying a home and may make it easier in many ways. For instance, a real estate agent can generally:

  • Help you determine your housing needs
  • Show you homes and neighborhoods in your price range
  • Suggest financing sources and techniques
  • Prepare purchase offers
  • Negotiate for you
  • Recommend resources you may need such as home mortgage brokers, title companies or inspectors
  • Give you an honest appraisal of the homes you’re considering
  • Arrange details of the closing once the seller has accepted your offer

Some agents may charge for these services, so you may want to first ask to discuss any potential fees. 

Take into account other financial considerations for buying a home

Once you’ve decided on a home to purchase, a financial advisor can help you address more complex financial questions that you may encounter:

  • Will your home purchase have any impact on your other financial goals? Do you need to make adjustments to your financial plan?
  • What type of insurance might you need on the property? Have you estimated your premium for homeowners and flood insurance?
  • If you’re going to live in the home as your primary residence, do you understand the tax benefits of home ownership?
  • Will you be using your home for business? If so, you might be eligible for a home office tax benefit.
  • Do you have any property ownership issues that need to be addressed such as sole ownership or tenancy in common?
  • Do you need to review or update your estate plan?

Are you ready to make the move?

An Ameriprise financial advisor can assist you with many of these home-buying details, and help you stay on track to achieve your other financial goals, too.

 

Disclosures

Ameriprise Financial cannot guarantee future financial results.

Ameriprise Financial, Inc. and its affiliates do not offer tax or legal advice. Consumers should consult with their tax advisor or attorney regarding their specific situation.

Investment advisory products and services are made available through Ameriprise Financial Services, Inc., a registered investment adviser.

Ameriprise Financial Services, Inc. Member FINRA and SIPC.

Find answers to commonly asked questions about private insurance options and federal programs

Whether you will owe taxes on disability, life, long-term care or health insurance benefits depends in part on the type of policy you have and could also depend on whether premiums were paid with pre- or post-tax dollars. Careful planning, to account for tax rules and potential implications, can help decrease the overall impact of taxes on your benefits.

Find answers to commonly asked questions about private insurance options and federal programs.

An Ameriprise advisor works with you and your tax professional to help determine tax implications based on your insurance status.

Disclosures

Before you purchase, be sure to ask your advisor about the insurance policy’s features, benefits and fees, and whether the insurance is appropriate for you, based upon your financial situation and objectives.

Ameriprise Financial, Inc. and its affiliates do not offer tax or legal advice. Consumers should consult with their tax advisor or attorney regarding their specific situation.

Ameriprise Financial Services, LLC. Member FINRA and SIPC.

Get the most of Medicare open enrollment

Health care expenses typically increase during retirement, so making informed decisions about your options is vital. Understanding Medicare open enrollment and how it works allows you to weigh your options and find the coverage that’s right for you and your budget.

The basics of open enrollment for Medicare

The Medicare open enrollment period (Oct. 15 to Dec. 7) is when people currently enrolled in Medicare can evaluate their existing health plan and prescription drug coverage and make changes for the year ahead.

During this time, for example, you may elect to opt out of Original Medicare (Parts A and B) and enroll in a Medicare Advantage Plan that offers a wider range of benefits. Or, if you have a Medicare Advantage Plan, you may be able to switch to a competing Medicare Advantage Plan if it is less expensive or better fits your needs.

Review your health care needs

Each year, it’s important to review your personal health care needs and determine if your current Medicare coverage is meeting them. A good first step is to analyze how you use the health care system. Some questions to consider are:

  • Have there been any changes in your health?
  • Do you have medical conditions that require frequent doctor visits?
  • Have you been hospitalized in the last year, and have you needed to see one or more specialists?
  • Do you take one or more prescription medicines daily for treatment of a chronic health issue?

Analyzing your Medicare coverage costs

Equally important is to review and analyze what your Medicare coverage costs you. Here are some questions to start:

  • What were your insurance premium costs in the last 12 months?
  • How much did you spend for co-pays and co-insurance, and did you reach or exceed your deductible?
  • How much did you spend on prescription drugs for the year?

Identifying the answers to these questions, and those above, will help you evaluate which Medicare coverage plan may best suit your needs.

Consider changes to get better Medicare coverage

Leading up to open enrollment, you will receive information from the Centers for Medicare & Medicaid Services (CMS) about legal changes to Medicare. Or, if you have Medicare Advantage coverage, you will receive an annual notice of change letter from the insurance company.

  • Compare and choose. If you decide to comparison shop among Medicare Advantage Plans, make sure to compare the details, such as the plan’s network of doctors, hospitals, benefits, and prescription drug coverage. Also, contrast the financial aspects including premiums, deductibles, co-pays and out-of-pocket limits.

    Your objective is to compare the Medicare benefits and cost effectiveness of plans in the context of what you need.

  • Be an educated health care consumer. Understanding Medicare takes some time and effort because it is complex. The more you know about Medicare, the better you will be at making health care decisions that will have a positive effect on your life and future.

Talk with your advisor about your health care needs in retirement and find out how you can make the most of your Medicare benefits.

 

Guide to investment asset allocation and risk tolerance

Whether you’re just starting to invest for retirement, or have a substantial amount set aside, the foundation of investing is understanding your comfort with risk, adjusting the mix of assets in your portfolio and diversifying your investments within it.

As you near retirement, you may want to assess your comfort with risk, adjust the mix of assets in your portfolio accordingly and select a diverse range of investments to help protect your portfolio from market volatility and prepare you to live off your savings.

Once retired, your focus shifts from saving to generating income from your savings in retirement. You’ll want to re-assess your comfort with risk, determine if a different mix of assets is appropriate, then select the investments that best align with your needs. 

Assessing your risk tolerance

In general, investments that have potential to generate higher returns are also more risky. Only you can decide how comfortable you are with that trade-off. The more time you have to save, the more likely it is that undertaking a little higher risk can pay off.

As retirement approaches, you have less time to recover from market losses. While it may be tempting to avoid risk completely, you still have time for your assets to grow, and should consider taking advantage of that potential.

Once you retire, your comfort with risk may be lower than it was during your working life. However tempting it may be to avoid risk completely, you may still need to have some assets in growth-oriented investments to give your dollars the potential needed to outpace inflation and to last throughout retirement. 

To determine tolerance for risk, Ameriprise financial advisors ask investors to answer a risk tolerance questionnaire.

Risk tolerance Levels

Conservative

I am willing to accept the lowest return potential in exchange for the lowest potential fluctuation in my account value even if it may not keep pace with inflation.

Moderately conservative

I am willing to accept a relatively low return potential in exchange for relatively low fluctuation in account value.

Moderate

I am willing to accept a moderate return potential in exchange for some fluctuation in account value.

Moderately aggressive

I am seeking a relatively high return potential and am willing to accept a relatively high fluctuation and potentially substantial loss in my account value.

Aggressive

I am seeking the highest return potential and am willing to accept the highest fluctuation and could lose most or all of my account value.

Revising your asset allocation

Once you understand your risk tolerance, you can construct your asset allocation — the mix of investments in your portfolio. As you approach retirement, your asset allocation strategies will change, and you may want to make adjustments to help protect you from market risk while retaining potential for growth. In retirement, your asset allocation needs to generate income from your savings while growing your overall portfolio.

Diversifying your portfolio

Once you select your asset allocation, you need to choose the investments within it. The goal of diversification is to invest in a range of products such as cash vehicles, bonds and stocks, or mutual funds, so that your assets are spread over many unrelated companies, industries and regions. Diversification is an important strategy that can help reduce risk in your portfolio. While some of your investments may lose value, those losses may be offset by gains in other investments.

Determining your risk tolerance, constructing an asset allocation and diversifying your underlying investments can be a complex process. An Ameriprise financial advisor can help you understand and apply these concepts, and review the progress of your portfolio on a regular basis to help meet your needs.

Disclosures

Investment products are not federally or FDIC-insured, are not deposits or obligations of, or guaranteed by any financial institution, and involve investment risks including possible loss of principal and fluctuation in value.

Ameriprise Financial, Inc. and its affiliates do not offer tax or legal advice. Consumers should consult with their tax advisor or attorney regarding their specific situation.

Neither asset allocation or diversification assure a profit or protect against loss.

Ameriprise Financial Services, Inc. Member FINRA and SIPC.

How can you avoid making these common investing mistakes?

History shows that when people invest and stay invested, they’re more likely to earn positive returns in the long run. When markets start to fluctuate, it may be tempting to make financial decisions in reaction to changes to your portfolio. But people who base their financial decisions on emotion often end up buying when the market is high and selling when prices are low. These investors ultimately have a harder time reaching their long-term financial goals.

How can you avoid making these common investing mistakes? Consider these investment strategies, which can help you reduce the risks associated with investing and potentially earn more consistent returns over time.

Strategy 1: Asset allocation

Appropriate asset allocation refers to the way you weight the investments in your portfolio to try to meet a specific objective — and it may be the single most important factor in the success of your portfolio. 

For instance, if your goal is to pursue growth, and you’re willing to take on market risk to reach that goal, you may decide to place as much as 80% of your assets in stocks and as little as 20% in bonds. Before you decide how you’ll divide the asset classes in your portfolio, make sure you know your investment timeframe and the possible risks and rewards of each asset class.

Risks and rewards of major asset classes

Stocks

  • Can carry a high level of market risk over the short term due to fluctuating markets
  • Historically earn higher long-term returns than other asset classes
  • Generally outpace inflation better than most other investments over the long term

Bonds

  • Generally have less severe short-term price fluctuations than stocks and therefore offer lower market risk
  • Can preserve principal and tend to provide lower long-term returns and have higher inflation risks over time
  • Bond prices are likely to fall when interest rates rise (if you sell a bond before it matures, you may get a higher or lower price than you paid, depending on the direction of interest rates)

Money market instruments

  • Among the most stable of all asset classes in terms of returns, money market instruments carry low market risk (managers of these securities try to keep the per-share price at $1 and distribute returns as dividends)
  • Generally don’t have the potential to outpace inflation by a large margin
  • Not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency (there’s no guarantee that any fund will maintain a stable $1 share price)

Different asset classes offer varying levels of potential return and market risk. For example, unlike stocks and corporate bonds, government T-bills offer guaranteed principal and interest — although money market funds that invest in them do not. As with any security, past performance doesn’t necessarily indicate future results. And asset allocation does not guarantee a profit.

Strategy 2: Portfolio diversification

Asset allocation and portfolio diversification go hand in hand. 

Portfolio diversification is the process of selecting a variety of investments within each asset class to help reduce investment risk. Diversification across asset classes may also help lessen the impact of major market swings on your portfolio.

How portfolio diversification works

If you were to invest in the stock of just one company, you’d be taking on greater risk by relying solely on the performance of that company to grow your investment. This is known as “single-security risk” — the risk that your investment will fluctuate widely in value with the price of one holding. 

But if you instead buy stocks in 15 or 20 companies in several different industries, you can reduce the potential for a substantial loss. If the return on one investment is falling, the return on another may be rising, which may help offset the poor performer.

Keep in mind, this doesn’t eliminate risk, and there is no guarantee against investment loss.

Strategy 3: Dollar-cost averaging

Dollar-cost averaging is a disciplined investment strategy that can help smooth out the effects of market fluctuations in your portfolio.

With this approach, you apply a specific dollar amount toward the purchase of stocks, bonds and/or mutual funds on a regular basis. As a result, you purchase more shares when prices are low and fewer shares when prices are high. Over time, the average cost of your shares will usually be lower than the average price of those shares. And because this strategy is systematic, it can help you avoid making emotional investment decisions.

How dollar-cost averaging might work in rising and declining markets

In the illustration below, the cost of the investment ranges between $10 and $25 from January through April. A fixed monthly investment of $100 buys as many as 10 shares when the price is lowest but only four shares when the price is highest. In this example, dollar-cost averaging results in a lower average share price during the period, while the market average price — for someone who bought an equal number of shares each month — is higher.

Dollar-cost averaging at $100 per month

Rising market
Month
When the price is
You buy
January
$10
10.00 shares
February
$15
6.67 shares
March
$20
5.00 shares
April
$25
4.00 shares
Declining market
Month
When the price is
You buy
January
$25
4.00 shares
February
$20
5.00 shares
March
$10
10.00 shares
April
$5
20.00 shares

Your Ameriprise financial advisor can help you feel more confident about your financial future, so discuss these strategies with your advisor to see if they may be right for you.

Disclosures

Asset allocation, diversification and dollar-cost averaging do not assure a profit or protect against loss.

Investment products are not federally or FDIC-insured, are not deposits or obligations of, or guaranteed by any financial institution, and involve investment risks including possible loss of principal and fluctuation in value.

There are risks associated with fixed income investments, including credit risk, interest rate risk, and prepayment and extension risk. In general, bond prices rise when interest rates fall and vice versa. This effect is usually more pronounced for longer-term securities.

Stock investments have an element of risk. High-quality stocks may be appropriate for some investments strategies. Ensure that your investment objectives, time horizon and risk tolerance are aligned with stocks before investing, as they can lose value.

Ameriprise Financial Services, Inc. Member FINRA and SIPC.

How much does long-term care insurance cost?

Long-term care insurance can be a crucial piece of your financial plan. Here are answers to five common questions you may have when shopping for long-term care insurance.

Long-term care insurance questions

How much will coverage cost?

In 2017, a couple in their 60s will pay between $100 and $150 a month each for long term care insurance, according to the American Association for Long-Term Care Insurance.1 But, over the long term, not covering the risk may end up costing so much more. Some experts recommend that most people pay up to five percent of their income for long-term care coverage. You may find you need to adjust the length of coverage or the daily payment in your policy to make the purchase more affordable. And, you may also want to consider a policy that provides automatic cost-of-living increases to protect against inflation. 

Why should I buy long-term care insurance? 

Seventy percent of people turning age 65 will need long-term care services sometime in their lives, according to the U.S. Department of Health and Human Services. Even if you have done a good job saving for retirement so far, you need to prepare for unexpected events that can derail your future, and the need for long-term care may be one of the costliest of those events. For example, if you need to move to a nursing home, the median cost per year for a private room is more than $97,000 per year.2 Medicare may cover some extended care costs but only under certain limited conditions.

Cost breakdown of long-term care options

If you or a loved one needs more hands-on care, you have choices, including assisted living or home health care. Here’s what you can expect.

When should I buy it?

It’s best to purchase long-term care insurance while you are still healthy and able to purchase it. Often as you age you can develop conditions that may make coverage more expensive, or worse yet you may not be able to qualify at all.

How much coverage will I need?

Long-term care prices can vary from state to state, so you may want to look into nursing home and assisted living costs in your area so you can make an accurate estimate of how much coverage you may need. Women typically need care longer than men, averaging 3.7 years compared to 2.2 years, respectively, according to longtermcare.govHere is a link to check out costs in your state.

Another important choice is how much you may need in daily benefits. Even if the average cost of care is more than $200 a day, a lower daily benefit can still go a long way toward paying for much-needed home health care, aides and housekeepers. For instance, a two-year benefit period at $100 per day is a $73,000 pool of money. That can buy you time to make other decisions.

What if I buy it and don’t end up needing it?

If you are concerned about spending money on long-term care insurance that you’ll never use, you may want to consider some of the hybrid products available. Many life insurance policies now offer a long-term care benefit rider that allows the policyholder to use a portion of the death benefit for long-term care. There are also life and long-term care hybrid insurance policies that pay a death benefit if the policyholder never needs long-term care. Both options mean that you or your beneficiary may benefit from the policy no matter how your circumstances unfold.

Pros and cons of your long-term care insurance options

 
Stand alone long-term care
Life insurance with a long-term care benefit rider
Hybrid of life insurance and long-term care
Pros

Sole purpose is long-term care protection

Flexible policy design for affordability

Combines life insurance and long-term care in one policy

Death benefit goes to your beneficiary

Cost of long-term care coverage may be guaranteed never to increase

May have money back guarantee. All guarantees are based by the claims-paying ability of the issuing company.

Cons

Rates can increase

Won’t get your
money back if you don’t use the insurance

Long-term care benefits may be more limited than with stand alone policy

Death benefit may be lower than with life insurance with a long-term care benefit rider

Ask your advisor to help you determine which strategy may be right for you.

Disclosures

1American Association for Long-Term Care Insurance, “Costs for new long term care insurance policies show nominal increase.”

2Genworth Cost of Care Survey, 2017.

By clicking certain links you will leave ameriprise.com. The included hyperlinks are provided for informational purposes only and are not an indication or endorsement of the content therein or affiliation with respect to the linked site. Be aware that the linked site will be subject to rules, regulation, and privacy and security provisions that are separate, and may differ, from Ameriprise Financial.

Before you purchase, be sure to ask your sales representative about the insurance policy’s features, benefits and fees, and whether the insurance is appropriate for you, based upon your financial situation and objectives.

Ameriprise Financial Services, Inc. Member FINRA and SIPC.

Vulnerable and senior investor resource guide

Some investors may face a unique set of challenges if they rely on family and caregivers to assist them in daily tasks. They may be more susceptible to financial exploitation due to isolation, cognitive decline, physical disability or other health issues.

Ameriprise strives to prevent any form of financial exploitation through ongoing education and dedicated support for our elderly and vulnerable clients – as well as for their friends, family and caregivers.

What is financial exploitation?

Financial exploitation is the illegal or improper use of an elderly or disabled person’s funds, property, or assets1. It is estimated that financial exploitation costs seniors almost three billion dollars annually2.

According to the National Adult Protective Services Association. the vast majority of reports to Adult Protective Services involve perpetrators who are related to, or in a trusting relationship with the victim2. However, scams perpetrated by strangers are also very common.

Signs of financial exploitation

  • Unexplained disappearance of funds or valuable possessions
  • Sudden appearance of previously uninvolved relatives claiming their rights to the investor’s affairs and possessions
  • Unexplained sudden transfer of assets to a family member or someone outside the family
  • Abrupt changes in a will, an account’s beneficiaries or other financial accounts
  • Substandard care being provided or bills unpaid despite the availability of adequate financial resources
  • Evidence of forgery for financial transactions or for the titles of his/her possessions or property

How investors can protect against financial exploitation

  • Don’t share personally identifiable information, such as Social Security number, credit card or bank account information over the phone
  • Review your account statements to ensure they are accurate
  • Shred files with your credit card number or other personally identifiable information on them
  • Sign up for the National “Do Not Call” Registry to prevent telemarketers from contacting you
  • Add a Trusted Contact Person to your account. This person will serve as a contact on your account in the event the firm suspects financial exploitation, to confirm someone is acting as the representative of a power of attorney or to determine your physical or mental health status

How to report financial exploitation at Ameriprise

If you or a loved one has been a victim of financial abuse:

  • Tell someone you trust or call your local police department
  • If you are a client of Ameriprise Financial, contact your financial advisor
  • Call customer service at 800 862-7919 to inquire about additional security measures to help

Additional Resources

FINRA Securities Helpline for Seniors
Reduce your risk of identity theft
Privacy, Security and Fraud Center
Senior Investor Protection Toolkit

 

Disclosures

1 Securities Industry and Financial Markets Association 2020. As of 4/6/2020. Retrieved from https://www.sifma.org/resources/general/senior-investor-protection-toolkit/
2 National Adult Protective Services Association (n.d.). As of 5/23/2019. Retrieved from http://www.napsa-now.org/policy-advocacy/exploitation 
Clicking some of the links will cause you to leave ameriprise.com.  The included hyperlinks are provided for informational purposes only and are not an indication or endorsement of the content therein or affiliation with respect to the linked sites. Be aware that the linked sites will be subject to rules, regulation, and privacy and security provisions that are separate, and may differ, from Ameriprise Financial.
Ameriprise Financial cannot guarantee future financial results.
Ameriprise Financial Services, LLC. Member FINRA and SIPC.

How to make the most of your Medicare benefits

If you’re near retirement or already retired — or helping someone who is — you’ll want to be aware of the ways Medicare can impact your finances so you can plan accordingly.

1. The cost of Medicare

Medicare has four parts, each with different costs. Take a look at the breakdown below to get a better sense of what each part entails.

Part A is hospital insurance, including in-patient care, skilled home care and hospice services.

A majority of seniors who paid taxes into Medicare during their working years do not have to pay premiums for Part A coverage. If you do not qualify for premium-free Part A but want hospital insurance, you can buy it by paying a premium of up to $437 per month in 2019.

Medicare hospital insurance involves deductibles, co-insurance and co-pays. For example, for a hospital stay in 2019, you are responsible for a $1,364 deductible.

Part B is medical insurance, including doctor visits, lab tests and some medical equipment.

Most people will pay the standard monthly amount of $135.50 for Part B insurance in 2019. The cost may be higher for people with higher reported incomes. Additional details can be found on medicare.gov.

Part B coverage also involves deductibles, co-insurance and co-pays. For 2019, the annual deductible is $185.

Part C is known as Medicare “Advantage.” These are health insurance plans offered by private companies that are approved and regulated by Medicare.

What is Medicare Advantage? With an Advantage plan, you get complete Part A and Part B coverage, and you have the same rights and protections of original Medicare.

Advantage plans usually charge higher monthly premiums because they offer additional services and broader coverage. For instance, Medicare does not cover routine dental care, hearing aids or vision care, and many Advantage plans do. And, most Advantage plans offer prescription drug coverage as part of their main plan, so you don’t have to buy this coverage separately.

Part D is for prescription drug plans (PDPs).

PDPs provide insurance coverage for your prescription drug therapies, and most plans are structured with premiums, deductibles and cost-sharing guidelines.

Many PDPs classify their list of covered drugs into “tiers” each priced differently. In general, drugs in lower tiers, such as generic drugs, cost less than those in higher tiers, such as brand-name drugs.

Drug lists and costs can vary greatly from plan to plan, so it’s imperative to find out if your prescription drugs are covered and how much they cost when you choose a PDP.

2. You may be penalized if you enroll too late

You can sign up for Medicare during a seven-month window, called your initial enrollment period, which includes the three months before the month you turn 65, your birthday month and the full three months following your birthday month. If you want Part B coverage and miss this enrollment window, you may have to pay a penalty premium each month.

3. Changes can be made to your Medicare plan on an annual basis

Review your Medicare plan regularly to ensure you’re getting the right coverage at the right price. You can change your Medicare coverage once a year during open enrollment, a set period when you can review your health and prescription drug plans and change them if you want to. For example, you can switch Advantage plans, opt in or out of original Medicare (Parts A and B) or change prescription plans. Medicare open enrollment typically takes place from Oct. 15 to Dec. 7, and any changes you elect to make will take effect on Jan. 1 of the following year.

Talk with your advisor about your health care needs in retirement and find out how you can make the most of your Medicare benefits.

 

Disclosures

Before you purchase, be sure to ask your sales representative about the insurance policy’s features, benefits and fees, and whether the insurance is appropriate for you, based upon your financial situation and objectives.

Ameriprise Financial Services, Inc. Member FINRA and SIPC.

Downsizing your home

As your life evolves, your needs change. That’s especially true of your housing needs when you transition into retirement.

What to consider when downsizing your life

If you’re an empty-nester, it may be time to rethink your housing situation. You may want to downsize into a smaller home, condo or townhouse that requires less maintenance. Or maybe you’d like to move to a warmer climate or live closer to your grandchildren. You may even wish to help your parents with retirement housing alternatives.

When thinking about how to downsize your home, consider your lifestyle. To help evaluate your choices, ask yourself the following questions:

  • Do you want to continue with home maintenance chores and expenses? Can you afford to hire help? Will you have to rely on friends, family and relatives?
  • How close do you want to live to family and friends? To public transportation? To shopping and social life?
  • Will you be able to renovate your home as your physical needs change?
  • Do you adjust to change and make friends easily?
  • How does your spouse feel about moving or staying at home? Your family?

What retirement housing options do you have?

  • Stay in the family home. If you’re physically independent and willing to do the upkeep, you’ll probably be happy with this option. You might also consider remodeling your home to reflect your changing lifestyle and needs.
  • Go with a smaller home, condo or townhouse. Downsizing your home and moving into a smaller space will likely be less expensive and more manageable. With a condo or townhome, most of the outdoor maintenance chores are done for you.
  • Move closer to or move in with your children. This option requires an important discussion with your kids about the emotional and practical implications this move could have on you and your loved ones. Ask yourself the following questions: are you physically and financially independent? Will you feel like you’re in the way? How will other family members feel?
  • Other retirement housing possibilities. Continuing care retirement communities (CCRC) are an increasingly popular option for many. CCRCs and/or assisted-living facilities rent rooms or apartments and offer as many or as few “extras” as you care to choose — housekeeping services, meals, social activities, transportation. Some also offer degrees of physical assistance if you require it.

Other financial considerations when downsizing

Before you make any major decisions, talk to a financial advisor about how changing your housing might affect your financial situation and your retirement, now and in the future.

Plan for the retirement lifestyle you want

An Ameriprise financial advisor can help you evaluate your options and considerations in terms of potentially downsizing your home as you prepare for retirement.

Disclosures

Ameriprise Financial cannot guarantee future financial results.

Ameriprise Financial Services, LLC. Member FINRA and SIPC.

It’s never too early to begin thinking about your legacy or to shape your estate plan

Financial estate planning

It’s never too early to begin thinking about your legacy or to shape your estate plan. Contrary to what many people think, you don’t need to be a millionaire to have an estate plan. An estate plan is an imperative part of any ongoing financial planning process.

What is estate planning?

Estate planning is the process of mapping out how your estate and assets will be divided in the event of your death, and to whom they will be passed on to. It also includes a plan for end-of-life health decisions should you become incapable of making these decisions yourself. Ideally, a good estate plan also seeks to minimize the tax burden for those inheriting your assets. 

Why is estate planning important?

Your life, your dreams, and your legacy transcend money — they also encompass your values. Your wishes and dreams may include using your assets to help secure your family’s future or you may choose to support another cause close to your heart. This might be your favorite charity, your community or your place of worship.

Elements of an estate plan

  • will lets you specify your wishes, including how you want your property distributed, who will administer your estate and who will care for your minor children.
  • trust holds your assets for the benefit of one or more people (you, your spouse, and your children). You’ll need an attorney’s assistance to create a trust.
  • Life Insurance proceeds are paid to a beneficiary at your death.
  • Gifts are transfers of property made during your life to family, friends or charity.
  • Tax exclusions are available as important estate planning tools. Consult your tax professional for details.

Preparing to plan your estate

Designing a legacy consistent with your dreams and values is a personal, often complex process. But it’s well worth the effort. Consider setting up a family estate planning meeting to help improve communication, prevent conflicts and let your family know what’s important to you.

After giving some thought to your wishes, including the needs of family members you want to provide for, seek the professional guidance and estate planning advice you need from your attorney, tax professional and financial advisor. To help you estimate the value of your estate, you’ll need to take the following into consideration:

  • Current income and likely future income
  • Annual expenses
  • Current assets and debts
  • Tax implications of federal transfer taxes, state death taxes and federal income taxes

Revisit your estate plan regularly

Just like your financial plan, it’s important to review your will and other estate planning documents regularly, or when significant life events occur. An Ameriprise financial advisor can help you create a financial plan that includes estate planning strategies designed to help you reflect the things that are important to you.

 

Disclosures

Ameriprise Financial, Inc. and its affiliates do not offer tax or legal advice. Consumers should consult with their tax advisor or attorney regarding their specific situation.

Ameriprise Financial cannot guarantee future financial results.

Investment advisory products and services are made available through Ameriprise Financial Services, LLC, a registered investment adviser.

Ameriprise Financial Services, LLC. Member FINRA and SIPC.

It’s never too early to begin thinking about your legacy or to shape your estate plan

Financial estate planning

It’s never too early to begin thinking about your legacy or to shape your estate plan. Contrary to what many people think, you don’t need to be a millionaire to have an estate plan. An estate plan is an imperative part of any ongoing financial planning process.

What is estate planning?

Estate planning is the process of mapping out how your estate and assets will be divided in the event of your death, and to whom they will be passed on to. It also includes a plan for end-of-life health decisions should you become incapable of making these decisions yourself. Ideally, a good estate plan also seeks to minimize the tax burden for those inheriting your assets. 

Why is estate planning important?

Your life, your dreams, and your legacy transcend money — they also encompass your values. Your wishes and dreams may include using your assets to help secure your family’s future or you may choose to support another cause close to your heart. This might be your favorite charity, your community or your place of worship.

Elements of an estate plan

  • will lets you specify your wishes, including how you want your property distributed, who will administer your estate and who will care for your minor children.
  • trust holds your assets for the benefit of one or more people (you, your spouse, and your children). You’ll need an attorney’s assistance to create a trust.
  • Life Insurance proceeds are paid to a beneficiary at your death.
  • Gifts are transfers of property made during your life to family, friends or charity.
  • Tax exclusions are available as important estate planning tools. Consult your tax professional for details.

Preparing to plan your estate

Designing a legacy consistent with your dreams and values is a personal, often complex process. But it’s well worth the effort. Consider setting up a family estate planning meeting to help improve communication, prevent conflicts and let your family know what’s important to you.

After giving some thought to your wishes, including the needs of family members you want to provide for, seek the professional guidance and estate planning advice you need from your attorney, tax professional and financial advisor. To help you estimate the value of your estate, you’ll need to take the following into consideration:

  • Current income and likely future income
  • Annual expenses
  • Current assets and debts
  • Tax implications of federal transfer taxes, state death taxes and federal income taxes

Revisit your estate plan regularly

Just like your financial plan, it’s important to review your will and other estate planning documents regularly, or when significant life events occur. An Ameriprise financial advisor can help you create a financial plan that includes estate planning strategies designed to help you reflect the things that are important to you.

 

Disclosures

Ameriprise Financial, Inc. and its affiliates do not offer tax or legal advice. Consumers should consult with their tax advisor or attorney regarding their specific situation.

Ameriprise Financial cannot guarantee future financial results.

Investment advisory products and services are made available through Ameriprise Financial Services, LLC, a registered investment adviser.

Ameriprise Financial Services, LLC. Member FINRA and SIPC.

Beneficiary designation

Designating a beneficiary: Keeping your accounts in order

Choosing appropriate beneficiaries for your financial accounts is a crucial part of leaving the legacy you want. Learn more about the basics of beneficiaries, tax implications and other considerations that can help ensure your loved ones receive your assets.

  • What is a beneficiary and why is it important?
  • What’s the difference between primary and secondary beneficiaries?
  • Who can you designate as a beneficiary?
  • Beneficiaries for retirement accounts, annuities and life insurance policies
  • Special considerations for IRAs

Ameriprise financial advisors will assist you with the beneficiary designation process and answer any questions you might have.


What is a beneficiary?

A beneficiary is a person or entity, such as a trust or non-profit, that you designate to receive the assets in your financial accounts when you die. A variety of accounts – from life insurance plans to traditional retirement funds – allow you to designate beneficiaries.

You can select family members or also friends or business entities as your beneficiary. Note that the account and subsequent funds are treated differently depending on your relationship with the beneficiary. For example, if you choose your spouse as an IRA beneficiary, they can move the assets into their own IRA account after your death. Non-spouse beneficiaries do not have this option.

The importance of choosing a beneficiary

Choosing a beneficiary is a simple way to indicate who should inherit the funds or assets in your accounts without going through the steps of creating a will or estate document. However, be aware that the beneficiary/beneficiaries you name for each of your retirement plans, annuities, life insurance policies and other assets will receive the proceeds from that account even if your will outlines different instructions. To help ensure everything is in order, you should regularly review all of your beneficiary designations with a financial advisor or estate planning attorney.

If you do not designate beneficiaries, your retirement plan will go to the default beneficiary under the plan document (if there is one) or into probate court if it goes to your estate. This could delay distribution of your assets as you intended and result in additional expenses for your loved ones after you’re gone.

Primary beneficiaries, secondary beneficiaries and contingent beneficiaries – what’s the difference?

It’s important to understand the different beneficiary types: primary, secondary and contingent beneficiaries.

  • Primary beneficiaries are your first choice to receive your retirement accounts or other benefits. If you’re married, this will typically be your spouse.
  • secondary beneficiary and a contingent beneficiary are essentially the same. These beneficiaries will be named and awarded your retirement benefits and assets if your primary beneficiary doesn’t survive you or disclaims the assets. 

Designate both primary and secondary beneficiaries – and take special measures if you’re assigning minors

If your named beneficiary doesn’t survive you, your funds could revert to your estate, resulting in probate court. To help prevent gaps in the beneficiary designation process and properly allocate all of your accounts, you should name both primary and secondary beneficiaries.

Similarly, if you’re designating children as your beneficiaries, your advisor or estate planning attorney can help you create a plan to ensure that your minor beneficiaries receive the funds when they’re supposed to — without unnecessary legal costs in the future.

Who (and what) can you designate as a beneficiary and what are the outcomes?

Your spouse
A spousal beneficiary has more flexibility to delay taxed distributions and move assets to their own account. For 401(k) or pension plans, your spouse must be the primary beneficiary unless spousal consent is given to the naming of another beneficiary. 

Your children or other family members (excluding your spouse)
You can assign someone else such as a child or other family member but it will require your spouse to sign away rights to be the primary beneficiary. Keep in mind that assigning a non-spouse as your beneficiary will not come with the same tax benefits and rollover options.

A trust
Designating a trust as beneficiary provides control over how assets are distributed. But there can be tax implications and other considerations. Always seek advice from an experienced tax professional before choosing a trust as a retirement plan or IRA beneficiary.

A charity
Choosing a charity as a beneficiary is a simple process for those wanting to give back after they pass away. However, keep in mind that mixing charity and non-charity beneficiaries may change the options available to the non-charity beneficiaries of a retirement plan if the charity is not paid out in a timely fashion.

Naming multiple beneficiaries
Having a hard time choosing between multiple beneficiaries? Fortunately, you can name more than one. If doing so, you will specify the amounts you want to allocate to each beneficiary. You can also choose to designate different beneficiaries within different accounts.

In addition to naming beneficiaries in a will, it’s important that you record your beneficiary choices in each of your financial accounts. Note that if there is a discrepancy, the beneficiaries you note in those accounts will supersede who you designate in your will. 

Naming your estate as a beneficiary 
Naming your estate as a beneficiary can feel more straightforward than naming specific beneficiaries for your major assets, but it has significant downsides.

If you name your estate as a beneficiary, the assets in your estate must pass through probate before distribution. This could take a year or longer. Additionally, when an estate is in probate, distribution of the assets can’t occur until creditors’ claims against the estate are resolved.

However, if your named beneficiaries are individuals, trusts or charities, your assets will typically go to them directly, bypassing probate and creditors.

  • Choose both primary and secondary beneficiaries
  • Keep taxes in mind when choosing beneficiaries
  • Don’t choose your estate as a beneficiary
  • Minors require special considerations

Retirement account, annuities and life insurance policies

Not all accounts and assets are equal with regard to beneficiary designations. The responsibilities and outcomes for beneficiaries can be very different, depending on the type of account or asset:

Annuities

  • Any annuity beneficiary can cash in the remaining funds left in an annuity after the owner passes away.
  • Spouses can either cash in an annuity or keep it, with the original contract terms still in force.
  • Non-spouse beneficiaries are required to take distributions
  • Annuity beneficiaries must pay income tax on the gains in the annuity — the difference between the principal paid into the annuity and the value of the annuity at the time the owner dies.

Retirement accounts

  • Retirement account assets are taxed when distributed from the plan to beneficiaries.*
  • Spousal beneficiaries can roll assets over into a new or existing retirement account.
  • Non-spouse beneficiaries are required to take distributions
  • Federal law requires that a spouse must be the primary beneficiary of a 401(k) account or pension plan account, unless the spouse waives their right in writing.

Life insurance policies

  • Beneficiaries receive the policy proceeds income tax-free.
  • In certain states, a spouse may be legally entitled to life insurance benefits.
  • Beneficiaries are paid in lump sums or in payments as requested by the account holder.

*This does not apply to Roth IRAs and Roth 401(k) accounts. Because the initial account owner funded them with post-tax dollars, these accounts are not taxable for beneficiaries and earnings are tax free as well if the Roth account has been in place for 5 years.

IRA stretch strategy in estate plans

An “IRA stretch strategy” allows an IRA beneficiary to take required minimum distributions (RMDs) from an inherited IRA after the owner’s death

For deaths prior to January 1, 2020, non-spouse beneficiaries such as adult children who inherited retirement accounts can take required minimum distributions over their lifetime.

Prior to the Secure Act, beneficiaries who inherited retirement accounts (such as a traditional or Roth IRA) could take the RMDs over their lifetime. The SECURE Act changes that financial strategy for most non-spouse beneficiaries who inherit their retirement account on or after Jan. 1, 2020. Now, those beneficiaries must take the account proceeds and pay the corresponding taxes within 10 years of inheriting the account. This can be done with any number of distributions as long as the entire account is distributed by the end of the year that contains the 10th anniversary of the owner’s death.

While the timeframe for using an IRA stretch is now shorter, this strategy can still help you pass substantial assets to your children or other family members. Additionally, some beneficiaries can still stretch their inherited IRAs over their lifetime, including:

  • Spouse beneficiaries (spouse beneficiaries usually rollover to their own IRA)
  • Non-spouse beneficiaries with disabilities or chronic illnesses
  • Non-spouse beneficiaries who are no more than 10 years younger than the IRA owner
  • Minor children of the IRA owner (up to the age of majority)

Learn more about the SECURE Act and the implications for using the stretch IRA strategy in estate plans  

An advisor will help you with beneficiary designation

Choosing the appropriate beneficiaries for your retirement accounts is important. Ask an Ameriprise financial advisor to review your accounts and beneficiaries so you can be confident about the legacy you’re leaving.

Disclosures

Ameriprise Financial, Inc. and its affiliates do not offer tax or legal advice. Consumers should consult with their tax advisor or attorney regarding their specific situation.

Investment products are not federally or FDIC-insured, are not deposits or obligations of, or guaranteed by any financial institution, and involve investment risks including possible loss of principal and fluctuation in value.

Ameriprise Financial Services, LLC. Member FINRA and SIPC.