Income Solutions WealthManangementLance A. Browning, RICPSr. Vice President/Founding Partner3200 Troup Hwy, Suite 150Tyler, TX 75701903-787-8916lance@incomesolutionstx.comwww.lancebrowning.com

April 2015Retirement Withdrawal Rates

When Your Child Asks for a Loan, ShouldYou Say Yes?

How Does Your 529 Plan Stack Up Againstthe Competition?

I owe a large amount of money to the IRS.Can I pay what I owe in installments?

April 2015

Retirement Withdrawal Rates

See disclaimer on final page

During your working years, you've probably setaside funds in retirement accounts such asIRAs, 401(k)s, and other workplace savingsplans, as well as in taxable accounts. Yourchallenge during retirement is to convert thosesavings into an ongoing income stream that willprovide adequate income throughout yourretirement years.

Your retirement lifestyle will depend not only onyour assets and investment choices, but alsoon how quickly you draw down your retirementportfolio. The annual percentage that you takeout of your portfolio, whether from returns or theprincipal itself, is known as your withdrawalrate. Figuring out an appropriate initialwithdrawal rate is a key issue in retirementplanning and presents many challenges.

Why is your withdrawal rate important?Take out too much too soon, and you might runout of money in your later years. Take out toolittle, and you might not enjoy your retirementyears as much as you could. Your withdrawalrate is especially important in the early years ofyour retirement, as it will have a lasting impacton how long your savings will last.

Conventional wisdomSo, what withdrawal rate should you expectfrom your retirement savings? One widely usedrule of thumb states that your portfolio shouldlast for your lifetime if you initially withdraw 4%of your balance (based on an asset mix of 50%stocks and 50% intermediate-term Treasurynotes), and then continue drawing the samedollar amount each year, adjusted for inflation.However, this rule of thumb has been underincreasing scrutiny.

Some experts contend that a higher withdrawalrate (closer to 5%) may be possible in the early,active retirement years if later withdrawals growmore slowly than inflation. Others contend thatportfolios can last longer by adding assetclasses and freezing the withdrawal amountduring years of poor performance. By doing so,they argue, "safe" initial withdrawal rates above5% might be possible. (Sources: William P.Bengen, "Determining Withdrawal Rates UsingHistorical Data," Journal of Financial Planning,

October 1994; Jonathan Guyton, "DecisionRules and Portfolio Management for Retirees:Is the 'Safe' Initial Withdrawal Rate Too Safe?"Journal of Financial Planning, October 2004)

Still other experts suggest that our currentenvironment of lower government bond yieldsmay warrant a lower withdrawal rate, around3%. (Source: Blanchett, Finke, and Pfau, "LowBond Yields and Safe Portfolio WithdrawalRates," Journal of Wealth Management, Fall2013)

Don't forget that these hypotheses were basedon historical data about various types ofinvestments, and past results don't guaranteefuture performance.

Inflation is a major considerationAn initial withdrawal rate of, say, 4% may seemrelatively low, particularly if you have a largeportfolio. However, if your initial withdrawal rateis too high, it can increase the chance that yourportfolio will be exhausted too quickly, becauseyou'll need to withdraw a greater amount ofmoney each year from your portfolio just tokeep up with inflation and preserve the samepurchasing power over time.

In addition, inflation may have a greater impacton retirees. That's because costs for someservices, such as health care and food, haverisen more dramatically than the ConsumerPrice Index (the basic inflation measure) forseveral years. As these costs may represent adisproportionate share of their budgets, retireesmay experience higher inflation costs thanyounger people, and therefore might need tokeep initial withdrawal rates relatively modest.

Your withdrawal rateThere is no standard rule of thumb. Everyindividual has unique retirement goals andmeans, and your withdrawal rate needs to betailored to your particular circumstances. Thehigher your withdrawal rate, the more you'llhave to consider whether it is sustainable overthe long term.

All investing involves risk, including the possibleloss of principal; there can be no assurancethat any investment strategy will be successful.

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When Your Child Asks for a Loan, Should You Say Yes?You raised them, helped get them throughschool, and now your children are on their own.Or are they? Even adult children sometimesneed financial help. But if your child asks youfor a loan, don't pull out your checkbook untilyou've examined the financial and emotionalcosts. Start the process by considering a fewkey questions.

Why does your child need the money?Lenders ask applicants to clearly state thepurpose for the loan, and you should, too. Likeany lender, you need to decide whether theloan purpose is reasonable. If your child is achronic borrower, frequently overspends, orwants to use the money you're lending to paypast-due bills, watch out. You might beenabling poor financial decision making. On theother hand, if your child is usually responsibleand needs the money for a purpose yousupport, you may feel better about agreeing tothe loan.

Will your financial assistance help yourchild in the long run?It's natural to want to help your child, but youalso want to avoid jeopardizing your child'sindependence. If you step in to help, will yourchild lean on you the next time, too? And nomatter how well-intentioned you are, the flipside of protecting your child from financialstruggles is that your child may never get toexperience the satisfaction that comes withsuccessfully navigating financial challenges.

Can you really afford it?Perhaps you can afford to lend money rightnow, but look ahead a bit. What will happen ifyou find yourself in unexpected financialcircumstances before the loan is repaid? Ifyou're loaning a significant sum and you'reclose to retirement, will you have theopportunity to make up the amount? If youdecide to loan your child money, be sure it's anamount that you could afford to lose, and don'ttake money from your retirement account.

What if something goes wrong?One potential downside to loaning your childmoney is the family tension it may cause. Whena financial institution loans money to someone,it's all business, and the repayment terms areclear-cut. When you loan money to a relative,it's personal, and if expectations aren't met,both your finances and your relationship withyour child may be at risk.

For example, how will you feel if your childtreats the debt casually? Even the mostresponsible child may occasionally forget tomake a payment. Will you scrutinize your child's

financial decisions and feel obligated to giveadvice? Will you be okay with forgiving the loanif your child is unable to pay it back? And howwill other family members react? For example,what if your spouse disagrees with yourdecision? Will other children feel as thoughyou're playing favorites?

If you decide to say yesThink like a lender

Take your responsibility, and the borrower's,seriously. Putting loan terms in writing soundstoo businesslike to some parents, but doing socan help set expectations. You can draft a loancontract that spells out the loan amount, theinterest rate, and a repayment schedule. Toavoid playing the role of parent-turned-debtcollector, consider asking your child to set upautomatic monthly transfers from his or herfinancial account to yours.

Pay attention to some rules

Having loan documentation may also benecessary to meet IRS requirements. If you'relending your child a significant amount, preparea promissory note that details the loan amount,repayment schedule, collateral, and loan terms,and includes an interest rate that is at leastequal to the applicable federal rate set by theIRS. Doing so may help ensure that the IRSdoesn't deem the loan a gift and potentiallysubject you to gift and estate taxconsequences. You or your child may need tomeet certain requirements, too, if the loanproceeds will be used for a home downpayment or a mortgage. The rules andconsequences can be complex, so ask a legalor tax professional for information on yourindividual circumstances.

If you decide to say noConsider offering other types of help

Your support matters to your child, even if itdoesn't come in the form of a loan. Forexample, you might consider making a smaller,no-strings-attached gift to your child thatdoesn't have to be repaid, or offer to pay a billor two for a short period of time.

Don't feel guilty

If you have serious reservations about makingthe loan, don't. Remember, your financialstability is just as important as your child's, anda healthy relationship is something that moneycan't buy.

Perhaps you have plenty ofmoney to lend, and you'renot earning much on it rightnow, so when your childasks for a loan, you think,"Why not?" But even if itseems to be the right thingto do, look closely atpotential consequencesbefore saying yes.

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How Does Your 529 Plan Stack Up Against the Competition?If you're one of the millions of parents orgrandparents who've invested money in a 529plan, now may be a good time to see how yourplan stacks up against the competition.Mediocre investment returns,higher-than-average fees, limited investmentoptions and flexibility--these factors might leadyou to conclude that you could do better withanother 529 plan or a different college savingsoption altogether. You can research 529 plansat the College Savings Plans Network websiteat collegesavings.org. If you discover that your529 plan's performance has been sub-par, whatoptions do you have?

Roll over funds to a new 529 planOne option is to do a "same beneficiaryrollover" to a different 529 plan. Under federallaw, you can roll over the funds in your existing529 plan to a different 529 plan (collegesavings plan or prepaid tuition plan) once every12 months without having to change thebeneficiary and without triggering a federalpenalty.

Once you decide on a new 529 plan, therollover process is fairly straightforward. Callyour existing 529 plan to see what steps arerequired; some plans may impose a fee for arollover, so make sure to ask. Then call yournew 529 plan and establish an account; yournew plan should have a process in place toaccept rollover funds. You must complete therollover to the new 529 plan within 60 days ofreceiving a distribution from your former 529plan to avoid paying a penalty.

If you want to roll over the funds in your existing529 plan to a new 529 plan more than once in a12-month period, you'll need to change thedesignated beneficiary to another qualifyingfamily member to avoid paying a federalpenalty. As a workaround, you can change thenew beneficiary back to the original beneficiarylater.

Change your investment strategy inyour current 529 planJust because you can switch to a new 529 plandoesn't necessarily mean you should. If thenew 529 plan you're considering has roughlythe same mix of investment choices and similarfees as your current plan, you might askyourself whether you'd be better off staying putand simply changing your current investmentallocations. This is especially true if you haveinvested in your own state's 529 plan and theavailability of related state tax benefits iscontingent on you remaining in your state'splan.

When changing your investment options, it'simportant to distinguish between your existingcontributions and your future contributions.Most 529 college savings plans let you changethe investment options for your futurecontributions at any time. So, for example, ifyou originally picked a more aggressiveinvestment option, you can choose a differentone (or more than one) for your futurecontributions.

The rules are stricter when it comes to yourexisting contributions. If you're unhappy withthe investment performance of your currentinvestment choices but don't want to switchplans completely (using the rollover optiondescribed earlier), 529 college savings plansare federally authorized (but not required) to letyou change the investment options for yourexisting contributions twice per calendar year(prior to 2015, the rule was only once per year).Check to see whether your 529 plan offers thisflexibility.

Choose other savings options that giveyou more investment controlIf your 529 plan investment returns have beenlackluster, you might wonder whether youshould continue putting money into youraccount. Although many 529 plans offer arange of investment options that you can pickfrom, you might decide that you'd like morecontrol over your college investments. In thatcase, you might consider using an entirelydifferent sayings option, such as a Coverdelleducation savings account, a custodial account,or an IRA, all of which let you choose yourunderlying investments.

As you evaluate your options, keep in mind thatany college investment strategy should bereexamined periodically in light of new laws andchanges in your individual circumstances.

Note: Investors should consider the investmentobjectives, risks, charges, and expensesassociated with 529 plans before investing.More information about specific 529 plans isavailable in each issuer's official statement,which should be read carefully before investing.Also, before investing, consider whether yourstate offers a 529 plan that provides residentswith favorable state tax benefits. As with otherinvestments, there are generally fees andexpenses associated with participation in a 529plan. There is also the risk that the investmentsmay lose money or not perform well enough tocover college costs as anticipated.

Mediocre investmentreturns, higher-than-averagefees, limited investmentoptions and flexibility--thesefactors might lead you toconclude that you could dobetter with another 529 planor a different collegesavings option altogether.

Page 3 of 4, see disclaimer on final page

http://www.collegesavings.org

Income SolutionsWealth ManangementLance A. Browning, RICPSr. Vice President/FoundingPartner3200 Troup Hwy, Suite 150Tyler, TX 75701903-787-8916lance@incomesolutionstx.comwww.lancebrowning.com

Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2015

The opinions voiced in this materialare for general information only andare not intended to provide specificadvice or recommendations for anyindividual. To determine whichinvestment(s) may be appropriate foryou, consult your financial advisorprior to investing. All performancereferenced is historical and is noguarantee of future results. Allindices are unmanaged and cannotbe invested into directly.

The information provided is notintended to be a substitute forspecific individualized tax planning orlegal advice. We suggest that youconsult with a qualified tax or legaladvisor.

LPL Financial Representatives offeraccess to Trust Services through ThePrivate Trust Company N.A., anaffiliate of LPL Financial.

Lance A. Browning is a RegisteredRepresentative with and Securitiesand Advisory Services offeredthrough LPL Financial, a RegisteredInvestment Advisor. MemberFINRA/SIPC.

Will I have to pay a penalty tax if I don't have qualifyinghealth insurance?It depends. One of the mainobjectives of the health-carereform law, the PatientProtection and Affordable

Care Act (ACA), is to encourage uninsuredindividuals to obtain health-care coverage. As aresult of the ACA, everyone must havequalifying health insurance coverage, qualify foran exemption, or pay a penalty tax. Thisrequirement is generally referred to as theindividual insurance or individual sharedresponsibility mandate.

Health insurance plans that meet therequirements of the ACA generally includeemployer-sponsored health plans, governmenthealth plans, and health insurance purchasedthrough state-based or federal health insuranceexchange marketplaces.

Individuals who are exempt from the individualinsurance mandate include:

Those who qualify for religious exemptions Certain noncitizens Incarcerated individuals Members of federally recognized American

Indian tribes

Those who qualify for a hardship exemption

Individuals may also qualify for an exemption if:

They are uninsured for less than threemonths

The lowest-priced insurance coverageavailable to them would cost more than 8% oftheir income

They are not required to file an income taxreturn because their income is below aspecified threshold

For tax year 2014, the penalty tax equals thegreater of 1% of the amount of your householdincome that exceeds a specific amount(generally, the standard deduction pluspersonal exemption amounts you're entitled tofor the year) or $95 per uninsured adult (halfthat for uninsured family members under age18), with a maximum household penalty of$285. In 2015, the percentage rate increases to2%, the dollar amount per uninsured adultincreases to $325, and the maximumhousehold penalty increases to $975.

I owe a large amount of money to the IRS. Can I paywhat I owe in installments?Unfortunately, not everyonegets a refund during taxseason. If you are in theunenviable position of owing a

large amount of money to the IRS, you may beable to pay what you owe through aninstallment agreement with the IRS.

With an installment agreement, the amount ofyour payment will be based on how much youowe in unpaid taxes and your ability to pay thatamount within the agreement's time frame.Although you are generally allowed up to 72months to pay, your plan may be for a shorterlength of time.

To request an installment agreement, fill outForm 9465, Installment Agreement Request,and attach it to your tax return, or mail it byitself directly to your designated InternalRevenue Service Center. If your balance due isnot more than $50,000, you can apply for aninstallment agreement online at IRS.gov.

The IRS will generally let you know within 30days after receiving your request whether it isapproved or denied (if you apply online, you'llget immediate notification of approval). If therequest is approved, the IRS will send you a

notice detailing the terms of your agreement.You will also be required to pay a fee of $120($52 if you make your payments by directdebit). You can make your payments by check,money order, credit card, payroll deduction, ordirect debit from your bank account.

Keep in mind that even if your request for aninstallment agreement is granted, you will stillbe charged interest and may be charged alate-payment penalty on any tax not paid by itsdue date. This interest and any applicablepenalties will be charged until the balance youowe to the IRS is paid in full.

It is important to realize that the fees andinterest charged by the IRS for an installmentagreement can add up. As a result, before youenter into an installment agreement, the IRSsuggests that you consider other alternatives,such as getting a bank loan or using availablecredit on a credit card.

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http://www.irs.gov