Categories
Financial Planning

How to Succeed with Financial Resolutions

If you want to succeed with your Financial New Year’s Resolutions, you need more than just a Goal. Focus on the actions required to accomplish your goal. If your goal is to have $1 million in your 401(k) at retirement, what action does that require? At an 8% return, that works out to $1,100 a month for 25 years. $1,100 a month is feasible for many people. Does your company offer matching contributions? Even easier.

People succeed with their resolutions not simply by having a goal, but by sticking to a process. A goal without action is never achieved. Wealth, then, is a habit, not an event. So is your health, relationships, education, or career. The direction of your life is the sum of your daily habits.

No one knows this better than musicians. Dedicated practice, continual learning, and achieving long-term goals is what professionals do. The musician who won the big audition has been preparing everyday for 10 or 15 years for that audition. Why then do so many musicians fail to apply those same habits to the financial aspects of their life?

Taking action without a goal is like wandering aimlessly. Running faster doesn’t help if you don’t know your destination. You need precise goals and then know how to break those long-term objectives into short-term, repeatable steps.

Our financial planning process begins with a One-Page Plan. The plan contains only two things: Goals and Actions. That’s all you need to get started. Clear and simple.

People don’t achieve their New Year’s Resolutions because they don’t stick to their plan. It’s not that the goal went away. So, just because success is simple doesn’t mean it is easy. Change is always a challenge. A good financial mentor can help you define your goals, explain the actions you need to take, and provide expert coaching along the way. That’s what I learned from my music teachers, and that’s how our financial planning works, too.

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Updates

Matching Grant Program 2021

Each year, we donate 10% of our pre-tax profit to Charity. Besides donating to non-profits of my choosing, I will match client donations up to $200 to a charity you support. It could be an Arts organization, university, museum, church, social welfare organization, animal shelter, or any other 501(c)3 organization!

To participate in our Matching Grant Program, clients can email me the name of their charity and the amount they donated in 2021. We are accepting requests now through October 31 and will pay out all donations by December 31.

I really look forward to this every year and am so proud to see all the ways my clients do good for their communities. I have the utmost respect for those who tithe and who give generously. This is also a small way for me to say a heartfelt thank you for allowing me the honor of being your financial advisor. I love what I do and it’s only possible because of the trust which you have placed in me.

To me, The Good Life means having an abundance mentality, showing gratitude for our blessings, and giving back to make the world a better place. I am happy to support the causes that are dear to you. Thank you!

Categories
Tax

Taxation of Unemployment Benefits for Musicians

On March 11, the President signed the American Rescue Plan Act (ARPA), which changed the taxation of unemployment benefits. Many musicians received unemployment benefits in 2020 due to Coronavirus shutdowns. Unemployment benefits have always taxable income, however, ARPA will allow you to exclude up to $10,200 of benefits from your 2020 income.

Musicians can qualify for this $10,200 exclusion as long as your modified adjusted gross income is below $150,000. The $150,000 earnings limit does not include amounts received as unemployment benefits. For married couples, each spouse qualifies for a $10,200 exclusion, if both received unemployment benefits. Benefits over $10,200 are still taxable income.

This change came well into tax season and many musicians had already filed their tax returns. The IRS says you do not need to file an amended return. The IRS will automatically issue a refund. Not sure if your tax return is correct? Check Schedule 1, line 7 and line 8. Line 7 should list your unemployment benefits received. On correct returns, line 8 should show “UCE” for Unemployment Compensation Exclusion and have a negative number, in parenthesis.

Should You Amend?

While the IRS will send you a refund if your return did not include the ARPA’s Unemployment Compensation Exclusion, you may want to start over. Why? If you reduce your taxable income by $10,200 or $20,400 (joint), you may discover that you are now eligible for additional tax credits, such as the Earned Income Tax Credit or the Saver’s Tax Credit. The IRS will recalculate these, if you already had them on your return. However, they will not determine your eligibility. So, if you did file your taxes before ARPA, you may want to check if you might now be eligible for any additional tax savings.

While the majority of taxpayers should not need to amend, there will be many musicians who could leave money on the table if they do not recalculate their return. If you recalculate and all the changes stem from Schedule 1, line 8, then you do not need to amend. If you have additional tax savings, or new tax credits apply due to the lower income levels, you may want to amend.

This has been quite a messy tax season for tax preparers, with changes happening in the middle of March. Do you pay state income tax? States are considering if they should match the Federal change on the taxation of Unemployment. Arkansas, for example, decided to exclude Unemployment from State Income Tax for 2020 and 2021. Some states are still in the process of changing their 2020 tax forms! Maryland is so slow to revise their instructions, they had push their state deadline to July 15.

Read more: Kiplinger’s State by State Guide to Taxation of Unemployment Benefits

2020 Tax Deadlines

If you have not filed your return, you have until May 18 this year. Residents of Texas, Oklahoma, and Louisiana have until June 15 due to the Federal Disaster Declaration from the winter storms. However, please note that if you file quarterly estimated tax payments for 2021, the deadline remains April 15 for the first quarter.

The ARPA exclusion of Unemployment Benefits only applied to 2020. At this point, there are no plans for the Federal exclusion to be carried forward to 2021. So, I would anticipate that any unemployment benefits in 2021 will be taxable. Taxes can certainly be a headache for musicians, but we can help. In our financial planning process, we address the major areas of your financial life, including Tax Strategies, Retirement Planning, Cash Flow and Budgeting, Risk Management, and Investing. We are accepting new clients and would be happy to discuss our services and how they may work for you. Here are 10 Questions to Ask a Financial Advisor and my answers, if you’d like to learn more.

Categories
Tax

Deducting Concert Clothes

Can professional musicians deduct the purchase of required concert clothes? Yes, but you need to meet the IRS requirements for “uniforms” for the expense to be allowable. The IRS has a two-part test for deducting concert clothes.

  1. You are required to wear the clothes as a condition of your job.
  2. The clothes are not suitable for everyday wear.

The IRS states that “Musicians and entertainers can deduct the cost of theatrical clothing and accessories that aren’t suitable for everyday wear.” Clearly, tails and tuxedos are not everyday wear. But other concert clothes for men and women, such as black pants or shoes, might be considered everyday clothing. The IRS cautions that it is not enough that you do not wear your work clothes away from work. The requirement is that the clothes are “not suitable for taking the place of your everyday clothing.”

For details, see Miscellaneous Expenses, IRS Publication 529.

1099 versus W-2 Deductions

1099 Musicians (independent contractors) can deduct required concert clothes on Schedule C as a business expense. W-2 employee used to be able to deduct concert clothes as an unreimbursed employee expense on Schedule A. Unfortunately, the concert clothing deduction for W-2 Musicians was eliminated in 2017 by the Tax Cuts and Jobs Act

If you have both W-2 and 1099 gigs, you may be able to allocate your concert clothes purchases towards the requirements of your 1099 employers. Be able to provide documentation of your deduction, including:

  • receipts describing the clothes purchased
  • documents from your employer listing the required dress code
  • state both that you do not wear the clothes at any time other than concerts AND that the clothing is not suitable for everyday use. I would suggest using the exact wording “not suitable”. While the IRS does not define “not suitable” in their instructions, that is the requirement.

Deducting Concert Clothes is a common tax deduction for professional musicians. Unfortunately, it’s easy to have that deduction tossed out by the IRS if you don’t follow their guidelines precisely!

Categories
Tax

The Musician’s Guide to Mileage, Part 1

The mileage deduction for musicians is one of our best tax breaks and biggest headaches! When can you deduct your driving expenses as a musician?

Between travelling to rehearsals, concerts, or lessons, you probably spend a fair amount of time in your car. It is a legitimate, and often significant, business expense for the professional musician. In Part 1 of this guide, we will look at when you can and cannot deduct mileage and your driving expenses. In Part 2, we will compare using the IRS standard mileage rate versus your actual costs.

It’s easiest to begin with what is not a deductible travel expense: you can never deduct “commuting”. The IRS defines commuting as driving between your home and primary workplace. For example, if you work at a University, then your drive to your office or studio would not be deductible.

W-2 Employee Musicians

Musicians who are W-2 employees used to be able to deduct mileage under “unreimbursed employee expenses”. This was on your itemized deductions on Schedule A of your tax return. This was eliminated by the Tax Cuts and Jobs Act (TCJA) in 2017. If you still do itemized deductions today, you might be able to deduct mileage for charity work or medical care. But for work, it’s no longer a deduction for W-2 employees.

Also eliminated: job search expenses (i.e. auditions) and moving expenses for a new job. Ugh.

Self-Employed Musicians

Musicians who are self-employed (1099, Independent Contractor) can deducting driving as a business expense on Schedule C. For most musicians, you will have some work which is W-2 and some which is 1099, so your mileage for each of these jobs needs to be tracked separately.

Here are types of mileage which you can deduct:

  1. Travel to rehearsals, gigs, or teaching. If your home is your primary office as a self-employed musician, than any drive from the “office” is deductible as a business expense.
  2. Driving to the airport for business travel.
  3. Trips for errands or supplies, repairs, meals and entertainment, and customer visits are also deductible.

The key to successfully deducting these expenses is to have contemporaneous documentation. Record the dates, locations, and miles traveled. The most common reason expenses are disallowed by IRS auditors is lack of supporting evidence. Keep a detailed mileage log, keep contracts showing dates of gigs, and be organized.

Track Your Miles

There are a number of apps to track your mileage, such as MileIQ, QuickBooks Self-EmployedEverlance, and others. These use your phone’s GPS to track your distances automatically, and then you can later categorize each trip as business or personal. This is very helpful if you, like me, often forget to write down your mileage! Just remember that you may be required to produce this documentation up to seven years in the future. Make sure you have saved your information in a hard copy or other permanent location. If audited by the IRS, they may send you an “Information Document Request” or IDR, requiring you to show evidence of all your specific trips. No evidence and they can throw out your deduction.

I know it is a pain to keep track of all this mileage, but it’s likely that your regular trips can add up to thousands of miles per year. For 2020, the IRS standard mileage rate is $0.575 per mile, so for every 1000 miles you drive, you can deduct $575 from your income. If you are in the 25% tax bracket, that will lower your tax bill by $144. If you are in a higher tax bracket, your savings will be even greater.

Also, you can deduct any tolls or parking costs on top of the standard mileage rate. Keep those receipts!

Next up: Part 2, where we compare the Standard Mileage Rate and Actual Cost methods for taking the mileage deduction for musicians.

This information is for educational purposes only and should not be construed as individual financial advice. Please talk to your CPA or tax preparer regarding your personal situation.

Categories
Financial Planning

SBA Loans for Musicians

With COVID-19 cancelling concerts everywhere, it’s helpful to know your options for SBA Loans for Musicians. If you missed the June 30 deadline for the Paycheck Protection Program (PPP), it has just been extended until August 8. We previously wrote about the PPP here.

The SBA still has $130 Billion available for PPP loans. Those “loans” could be forgiven entirely, when you spend the money on qualified expenses, such as payroll. If you are a self-employed musician, take a closer look at the PPP. If you have Schedule C self-employment income (1099), you are an eligible small business!

The PPP was designed to support small businesses, to help them keep employees on the payroll and off unemployment. So, if you are already collecting Unemployment Benefits, you may lose them temporarily if you receive the PPP.

PPP and Unemployment

The extra $600 a week in unemployment is set to expire at the end of July. If you can time it right, you could collect unemployment through the end of the month, then switch to the PPP for 8 weeks starting August, once you receive that loan. You could pay yourself the full “average monthly earnings” as calculated in your PPP application, rather than the reduced Unemployment Benefits. That’s the benefit in applying for the PPP. The eligible period for spending the PPP has been increased from 8 weeks to 24 weeks. However, it might be preferable to pay yourself over 8 weeks, if that would allow you to resume or start unemployment benefits.

Under the Pandemic Unemployment Assistance (PUA) program, states are providing up to 39 weeks of unemployment benefits. Generally, this will run through the end of December. There is some discussion in Washington to extend the extra $600 a week (or maybe $450). We will have to wait and see what happens! For now, it might be best to assume these programs expire as scheduled, and plan accordingly.

EIDL and the PPP

For musicians who previously accepted the EIDL (Economic Injury Disaster Loan), you can still potentially do the PPP. The EIDL advance ($1,000 for individuals) would reduce the forgivable amount of the PPP loan, but you can just repay that $1,000 and close out the PPP loan. Here are instructions on applying for the PPP if you already took the EIDL.

SBA Loans for musicians are offering an important life jacket during this difficult time. I really want to get back to making music and miss it terribly. Until that is possible, we need to avail ourselves of any and all resources to stay afloat and keep paying the bills. If you want financial planning specific to musicians, I am accepting new clients this summer and we can help you with the issues you are facing today.

Categories
Financial Planning

Paycheck Protection Program for Musicians

Here’s information on the Paycheck Protection Program for musicians (PPP): what it is, who is eligible, how to apply.

As part of the $2 Trillion Coronavirus Stimulus Package, $349 Billion will fund loans to small businesses. These loans are designed to keep employees on the payroll and off unemployment. The loans are forgivable. The government doesn’t want you to pay them back, as long as you spend the money to pay employee salaries and benefits for two months. It’s called the Paycheck Protection Program.

But you’re a musician, not a business, right? Hold on, if you are self-employed, you may be eligible, even if you are the only “employee”. You don’t have to be incorporated or have a bricks and mortar store to be a business. The rules are quite broad. We will give you an overview of the program and then explain how you can apply as a musician. Applying for the PPP is straightforward using a two-page application.

Before we get into the PPP: apply for unemployment benefits if you are unemployed, even temporarily. The CARES Act added unemployment coverage for self-employed and independent contractors, for the first time ever. Benefits will be increased $600 a week on top of usual unemployment amounts, for the next four months. If you are concerned that Coronavirus closures might keep you unemployed for more than 8 weeks, unemployment might be the better option than the PPP. States are not yet taking applications for unemployment benefits for Independent Contractors. Hopefully that will be online in a few days. If you aren’t unemployed, impacted and still open for business, read on.

PPP Overview

The Paycheck Protection Program is a loan to businesses under 500 employees. The Small Business Administration (SBA) guarantees the loans, which will be provided through 1700 Banks and Credit Unions. Your bank is probably already an SBA lender. Technically, the PPP is a 2-year loan at 0.50% interest. Payments are not required for six months. If you spend the loan on allowable expenses within 8 weeks, then the loan will be forgiven. You also have to keep the same number of employees and not reduce payroll during this period. The loan forgiveness will be non-taxable. Steps:

  1. Apply for the loan at your bank using Model Application (link below).
  2. Spend the loan in the following eight weeks on payroll, benefits, and rent.
  3. Apply for loan forgiveness and document that the funds were spent as intended.

You must state on the application that your business was impacted by the Coronavirus and you need this money to meet payroll and expenses. This is easy. Concerts were cancelled. Music lessons are a non-essential business and were required to close in your area due to the shelter in place rules.

Loan Amount and Application

The application provides instructions to calculate your loan amount. You are eligible to borrow 2.5 months of payroll, up to $10 million. Payroll includes gross pay plus taxes. Salary eligible for loan forgiveness is capped to $100,000 per person annually.

Then over the next eight weeks, you can spend the loan on payroll, payroll taxes, employee benefits, including health insurance premiums, retirement plan contributions, and sick leave or vacation. You can also spend the money on rent or mortgage interest for your business property (if you have a studio, for example). Non-payroll expenses cannot exceed 25% of the total.

Eligible businesses includes corporations and LLCs, but also includes non-profit organizations, sole proprietors, and those who are self-employed or independent contractors. Many businesses can apply for the loan starting on April 3, 2020, and Independent Contractors can apply starting April 10. The program will close once the $349 Billion is gone. Don’t delay!

Here is the required application for the Paycheck Protection Program. Your bank may have additional paperwork for the loan. The SBA is paying all the application or service fees for the loan, so it costs you nothing. Amazingly, the Federal government is pushing cash so fast into the economy that neither banks nor state unemployment departments are prepared. In fact, the final rules from the SBA are not expected until around April 13. So, it’s grab the cash now and figure out the details later! I guess desperate times call for desperate measures.

Musicians, you are a business and you have absolutely been impacted by the Coronavirus, resulting in loss of income. If eligible, take the time to apply for this benefit. It’s a two page application with two pages of instructions which could replace two months of income for you and your employees.

Employee Retention Credit

If you own a business with multiple employees, such as a music school, band, etc., you should also know about the Employee Retention Credit. It’s another part of the CARES Act. To qualify, you must have either been temporarily closed down due to local regulations or have your gross receipts fall by 50% this quarter versus last year. For business owners with lower income or part time workers, it may be better to use the Employee Retention Credit rather than the PPP. You have to choose one or the other: if you take the PPP you are ineligible for the Employee Retention Credit.

The Employee Retention Credit is for 50% of income per employee up to $10,000 a year. So the maximum credit is $5,000 per employee for 2020. Now if your employees will make less than $5,000 in 2.5 months but more than $10,000 for the rest of the year, you would be better off with the ERC versus the PPP. The ERC is not available to self-employed individuals and will apply to income from March 12, 2020 to the end of the year. Full details and eligiblity here on the IRS Website.

I know these are difficult times and musicians are hurting. Many lenders, mortgage companies, and credit cards, are allowing people to delay their payments. There is federal aid coming and expanded unemployment benefits. If you have questions on the Payroll Protection Program for musicians, please feel free to send me an email.

Categories
Financial Planning

Unemployment Benefits for Musicians

With the Coronavirus causing cancellations of concerts, schools, church services, and other gigs, many of you are wondering about unemployment benefits for musicians. Are you eligible?

Unemployment insurance is provided at the state level and each state has its own eligibility, rules, and application process. To find the link for your own state, visit the US Department of Labor website here. This site includes any new rules or benefits offered because of the COVID-19 crisis.

If you are a W-2 musician (an “employee”) you are generally eligible for benefits if you have lost work due to Coronavirus. You don’t have to be a full-time employee or work exclusively for just one employer. Even if your lay-off is temporary, and you are not permanently “fired”, you may still be eligible for benefits. Please check your state rules and verify before assuming you aren’t eligible. And know that filing for benefits doesn’t cost your employer. They already paid premiums to the state for this insurance.

Here in Texas, the state will need your past five quarters of earnings and will base your benefit on the first 4 of 5 quarters. Benefits range from $69 to $521 a week, depending on your past wages. You should apply as soon as possible to avoid missing any weeks of benefits. There is often a lag of three or so weeks until you receive your first payment.

Self-Employed?

The bigger challenge for musicians is that many of us are 1099 or “Independent Contractors”. If you are self-employed, you are generally not going to be eligible for unemployment benefits. Minnesota offers benefits to the self-employed, but only if you paid into the program in advance. So, you need to check your own state rules to verify.

This brings up an important point. Many ensembles incorrectly classify musicians as Independent Contractors, when they should be Employees. Some musicians point out that they have more tax deductions as an Independent Contractor. That’s true. However, you miss out on two big advantages as a Employee. First is Unemployment Benefits, which you don’t get as a 1099. Second is that an employer has to pay 7.65% towards your Social Security and Medicare taxes. This cuts in half the Self-Employment tax that you would pay as a 1099. That’s like a 7.65% raise by going from 1099 to W-2.

The Lancaster Symphony Case set a legal precedent that orchestra musicians are employees. It’s time for orchestras to stop classifying musicians as Independent Contractors. That would allow more Unemployment Benefits for working musicians.

Stay healthy. I hope this will pass soon so we can all get back to performing, teaching, and sharing our love of music. Don’t be afraid to ask about Unemployment Benefits for Musicians. Yes, it can be a pain to apply and meet all the ongoing eligibility requirements. But if you are out of work, don’t delay in getting the benefits you deserve.

UPDATE April 3, 2020: The CARES Act passed last week is expanding Federal unemployment coverage to include self-employed individuals. While this benefit is supposedly available immediately, the states are still working on how to actually do this. Here in Texas, there are presently no instructions or process to apply for unemployment benefits for self-employed, “gig economy” workers. But this should be available soon. We will have to see how they will calculate your income and benefits, it will be interesting!

Categories
Retirement Planning

Roth Conversions for Musicians

I want to get the word out about Roth Conversions for Musicians. So many of us are missing out. If you make less than $105,050 married, a Roth Conversion is a great way to potentially save on future taxes. For a married couple, the 12% Federal Income tax rate goes all the way up to $80,250 for 2020. That’s taxable income. With a standard deduction of $24,800, a couple could make up to $105,050 and remain in the 12% bracket. Above those amounts, the tax rate jumps to 22%.

For musicians who are in the 12% bracket, consider converting part of your Traditional IRA to a Roth IRA each year. Convert only the amount which will keep you under the 12% limits. For example, if you have joint income of $60,000, you could convert up to $45,050 this year.

Roth Conversions for Musicians requires paying some taxes today. But paying 12% now is a great deal. Once in the Roth, your money will be growing tax-free. There will be no Required Minimum Distributions on a Roth and your heirs can even inherit the Roth tax-free. Don’t forget that today’s tax rates are going to sunset after 2025 and the old rates will return. At 12%, a $45,050 Roth conversion would cost only $5,406 in additional taxes this year.

Take Advantage of the 12% Rate

If you or your spouse has a large IRA or 401(k), the 12% rate is highly valuable. Use every year you can do a 12% Roth Conversion. Otherwise, you are going to have no control of your taxes once you begin RMDs. If you have eight years to convert $40,000 a year, that’s going to move $320,000 into a tax-free account. I have many clients who don’t need their RMDs, but are forced to take those taxable distributions.

Here are some scenarios to consider Roth Conversions for Musicians:

  1. One spouse is laid off temporarily, on sabbatical, or taking care of young children. If you have a low income year as a musician, that’s a good year to look at a Conversion. This could be at any age.
  2. One spouse has retired, the other is still working. If that gets you into the 12% bracket, make a conversion.
  3. Working less in your 60’s? Hold off on Social Security so you can make Roth Conversions. Once you are 72, you will have both RMDs and Social Security. It is amazing how many people in their seventies are getting taxed on over $105,050 a year once they have SS and RMDs! These folks wish they had done Conversions earlier, because after 72 they are now in the 22% or 24% bracket.

Retiring Soon?

Considering retirement? Let’s say you will receive a $48,000 pension at age 65. (You are lucky to have such a pension – most workers do not!) For a married couple, that’s only $23,200 in taxable income after the standard deduction. Hold off on your Social Security and access your cash and bond holdings in a taxable account. Your Social Security benefit will grow by 8% each year. The 10 year Treasury is yielding 1.6% today. Spend the bonds and defer the Social Security.

Now you can convert $57,050 a year into your Roth from age 65 to 70. That will move $285,250 from your Traditional IRA to a Roth. Yes, that will be taxable at 12%. But at age 72, you will have a lower RMD – $11,142 less in just the first year.

When you do need the money after 72, you will be able to access your Roth tax-free. And at that age, with Social Security and RMDs, it’s possible you will now be in the 22% tax bracket. Don’t think taxes go away when you stop working!

Read more: 7 Missed IRA Opportunities for Musicians

How to Convert

When should you do Roth Conversions for Musicians? The key is to know when you are in the 12% bracket and calculate how much to convert to a Roth each year. The 12% bracket is a gift. Your taxes will never be lower than that, in my opinion. If you agree with that statement, you should be doing partial conversions each year. Whether that is $5,000 or $50,000, convert as much as you can in the 12% zone. You will need to be able to pay the taxes each year. You may want to increase your withholding at work. If you are a self-employed musician, be sure to make quarterly estimated payments to avoid an underpayment penalty.

What if you accidentally convert too much and exceed the 12% limit? Don’t worry. It will have no impact on the taxes you pay up to the limit. If you exceed the bracket by $1,000, only that last $1,000 will be taxed at the higher 22% rate. Conversions are permanent. It used to be you could undo a conversion with a “recharacterization”, but that has been eliminated by the IRS.

While I’ve focused on folks in the 12% bracket, a Conversion can also be beneficial for musicians in the 22% bracket. The 22% bracket for a married couple is from $80,250 to $171,050 taxable income (2020). If you are going to be in the same bracket (or higher) in your seventies, then pre-paying the taxes today may still be a good idea. This will allow additional flexibility later by having lower RMDs. Plus, a 22% tax rate today might become 25% or higher after 2025! Better to pay 22% now on a lower amount than 25% later on an account which has grown.

A Roth Conversion is taxable in the year it occurs. In other words, you have to do it before December 31. A lot of tax professionals are not discussing Roth Conversions if they focus solely on minimizing your taxes paid in the previous year. But what if you want to minimize your taxes over the rest of your life? Consider each year you are eligible for a 12% Roth Conversion. Also, if you are working and in the 12% bracket, maybe you should be looking at the Roth IRA or 401(k) rather than the Traditional option.

Where to start? Contact me and we will go over your tax return, wage stubs, and your investment statements. From there, we can help you with your personalized Roth Conversion strategy. I know taxes are a headache for most musicians. But with some planning, we can add a lot of value by taking advantage of the years where your earnings are in a lower tax bracket.

Categories
AFM-EPF

Disability and The Musicians’ Pension

Are you no longer performing due to injury or disability? If you are a participant in the Union Pension, the AFM-EPF, you should know about the plan’s disability benefits. The reason why a disability pension is more desirable than a retirement benefit today is that under the ERISA rules, the pension cannot reduce payments for Disability Benefits. You would be immune to the expected cut in benefits, versus if you were planning to wait to make an application for regular retirement benefits.

With the plan entering Critical and Declining status this year, the AFM-EPF has announced its intention to reduce benefits to retirees and participants. We won’t know the extent of the cuts needed until later this year, but the plan is underfunded by about one-third, and only about half of all participants would be subject to a cut in benefits, due to age, disability, or a small benefit. Read More: Musicians’ Pension to Cut Benefits.

There are two ways to qualify for disability. First, if you have already qualified for disability under Social Security, you can provide a copy of your disability letter when applying for the AFM-EPF benefits. This is the more difficult way, because Social Security requires you to be totally disabled for any type of work. But if you have already qualified under Social Security, that should suffice.

The second way to apply for disability through the AFM-EPF is by submitting a physician’s statement with your application. This requires a three-page form attesting to your disability. Link: Attending Physician Statement. This states that you are unable to continue to perform, which could be due to repetitive use injuries, back or shoulder problems, mental or nervous impairment, etc. This is an “own occupation” definition of disability, which unlike Social Security, means you could still do other work such as teaching music, or you could switch to another career.

If you are no longer playing due to a disability, or if you are playing today in pain, you may want to consider if you want to apply for the disability benefit now. Since the EPF plans to cut benefits, your future benefits under a Disability application could remain higher than if you apply under a regular Retirement application. Here are the full instructions for a disability application:

To be eligible for a disability pension, a participant must:

(1) file a complete application with the Fund Office;

(2) stop working in Covered Employment because of a condition of Total Disability;

(3) have at least 10 years of Vesting Service;

(4) have not started to receive a Regular Pension Benefit;

(5) be determined to have a Total Disability by the Administrative Committee of the Board of Trustees;

(6) not be eligible, on his or her Pension Effective Date for a Regular Pension Benefit; and

(7) have earned at least 1 Year of Vesting Service in the three calendar year period immediately preceding the Pension Effective Date.

To clarify requirement #6, you become eligible to receive a Regular Pension Benefit when you meet either of the following requirements:

  • You reach  your  Normal  Retirement  Age  (generally  age  65)  while  you  are  still  an  Active Participant; or
  • You reach age 55, are vested, and retire from all Covered Employment.

Have questions about your retirement planning? Does your financial advisor have the specific expertise and experience of working with professional musicians? Send me a message and let’s discuss your goals.