Elder Abuse Continues as a Billion-dollar Problem

Aging baby boomers are a giant target for scammers. A report issued last year from a federal agency, the Consumer Financial Protection Bureau highlighted the growth in banks and brokerage firms that reported suspicious activity in elderly clients’ accounts. The monthly filing of suspicious activity reports tied to elder financial exploitation increased four times from 2013 through 2017, according to a recent article from the Rome-News Tribune titled “Financial abuse steals billions from seniors each year.”

When the victim knew the other person, a family member or an acquaintance, the average loss was around $50,000. When the victim did not have a personal relationship with their scammer, the average loss was around $17,000.

What can you do to protect yourself, now and in the future, from becoming a victim? There are many ways to build a defense that will make it less likely that you or a loved one will become a victim of these scams.

First, don’t put off taking steps to protect yourself, while you are relatively young. Putting safeguards into place now can make you less vulnerable in the future. If you are diagnosed with Alzheimer’s or another form of dementia five or ten years from now, it may be too late.

Create a durable power of attorney as part of your estate plan. This is a trusted person you name as your legal representative or agent, who can manage your financial affairs if need be. While it is true that family members are often the ones who commit financial elder abuse, you’ll need to put your trust in someone. Usually this is an adult child or a relative. Make sure that the POA suits your needs and is properly notarized and witnessed. Don’t count on standard templates covering your unique needs.

Consider the guaranteed income approach to retirement planning. Figuring out how to generate a steady stream of income as you face the cognitive declines that occur in later years might be a challenge. Planning for this in advance will be better.

Social Security is one of the most valuable sources of guaranteed income. If you will receive a pension, try not to do a lump sum payout with the intent to invest the money on your own. That lump sum makes you a rich target for scammers.

Consider rolling over 401(k) accounts into Roth accounts, or simply into one account. If you have one or more workplace retirement plans, consolidating them will make it easier for you or your representative to manage investments and required minimum distributions.

Make sure that you have an estate plan in place, or that your estate plan is current. Over time, families grow and change, financial situations change and the intentions you had ten, twenty or even thirty years ago, may not be the same as they are today. An experienced estate planning attorney can ensure that your wishes today are followed, through the use of a will, trust and other estate planning strategies.

Resource: Rome News-Tribune (April 27, 2020) “Financial abuse steals billions from seniors each year.”

How Does a Roth 401(k) Work?

Most Americans have most of their retirement savings in a 401(k) plan or similar employer-sponsored retirement account, which is great. Your contributions to a 401(k) plan can decrease your taxable income today. However, eventually, when you take distributions from the account, you’re going to owe ordinary income taxes.

CNBC’s recent article, “A Roth 401(k) offers tax advantages. Here’s how it works” says that more employers are offering another option for your retirement savings—a Roth 401(k). When you contribute to a Roth 401(k), the contribution won’t lower your taxable income today. However, when you withdraw money in the future, like a Roth IRA, it’s tax-free. A Roth 401(k) lets you save much more than a Roth IRA. You can only contribute $6,000 to a Roth IRA, and if you’re age 50 or older, you can make an additional catch-up contribution of $1,000.

401(k) plans are more liberal with what you can save. The limit is $19,000 a year to a 401(k) in 2019, and Roth 401(k) plans share that limit. If you are over age 50, you can save an additional $6,000. However, the amount you earn also makes a difference. Roth IRAs have an income cap. You can’t contribute to a Roth IRA, if you earn more than $203,000.

The biggest negative with a Roth 401(k) is how contributions might affect your tax liabilities today. If you earn $100,000 a year and save $19,000 to a traditional 401(k), your taxable income would be only $81,000. However, by contrast, if you make the same $19,000 contribution to a Roth 401(k), you’ll still have taxable income of $100,000.

There are no tax consequences when you take money out of a Roth 401(k), when you’re 59½ and you meet the five-year rule. However, if you take a similar distribution from a traditional 401(k) plan, the money you withdraw is subject to ordinary income tax.

There are also required minimum distributions (RMDs). Roth 401(k) account owners have to take the RMD at age 70½. This is not for Roth IRA owners. Therefore, you may want to roll your Roth 401(k) account over to a Roth IRA account before you turn 70½.

If you are interested in learning more about IRA’s and 401 (k)’s click here.

Reference: CNBC (April 23, 2019) “A Roth 401(k) offers tax advantages. Here’s how it works”