Veteran Benefits

A Guide to Federal Veterans Benefits

There are two separate agencies overseen by the U.S. Department of Veterans Affairs (VA): the Veterans Health Administration and the Veterans Benefits Administration. The Veterans Health Administration determines eligibility for medical benefits, while the Veterans Benefits Administration determines eligibility for financial benefits. The agencies operate independently and have separate eligibility criteria for their programs. As such, if you qualify for medical benefits, it does not guarantee that you will qualify for financial benefits.

Eligibility for medical and monetary benefits depends on your discharge status. Generally, a veteran will satisfy the discharge requirement if his or her classification is “honorable” or “general under honorable conditions.” A veteran with a discharge classification of “other than honorable conditions,” “bad conduct,” or “dishonorable” may not be eligible for VA benefits.

Medical benefits

The Veterans Health Administration provides health care for former service members. All veterans are eligible for VA hospital and outpatient care, unless they received a dishonorable discharge from active military service. Congressional funding to the Veterans Health Administration, which changes every year, may affect veteran access to care.

You will be enrolled in one of eight priority groups when you apply for medical benefits. Your assignment to a priority group will be based on several factors, including your service-connected disability rating, status as a combat veteran, and income. Priority Group 1 has the highest priority for enrollment.

Special eligibility for combat veterans. Under the National Defense Authorization Act for Fiscal Year 2008, all veterans who served in a combat theater of operations after November 11, 1998, are entitled to five years of VA health care from the date of separation from military service. Combat veterans are automatically enrolled in Priority Group 6.

Agent Orange exposure. The VA presumes that Agent Orange causes certain cancers (e.g., multiple myeloma) and other diseases (e.g., type 2 diabetes mellitus, ischemic heart disease, and Parkinson’s disease). The full list of diseases presumed to be caused by Agent Orange is available here: www.publichealth.va.gov/exposures/agentorange/conditions/index.asp.

This “presumptive policy” for Agent Orange grants eligibility for medical care to veterans who served in either Vietnam or Korea during certain time periods. If you have a presumptive condition, you do not have to prove a causal connection between your military service and your illness.

For Vietnam, the period begins on January 9, 1962, and ends on May 7, 1975. Service in Vietnam includes duty on a ship that operated on inland waterways. Note, however, that exposure to Agent Orange is not presumed for “Blue Water Veterans” who did not serve aboard ships that operated on inland waterways. For Korea, the period includes service in areas around the Korean demilitarized zone between April 1, 1968, and August 31, 1971.

TRICARE. Active service members, retired service members, qualified family members, and certain survivors can receive health care through the TRICARE plan. Care may be offered through either military or civilian providers depending on your status, the TRICARE option you choose, and the availability of care at military facilities.

Compensation and pension benefits

The Veterans Benefits Administration administers financial programs for eligible veterans. Eligibility largely depends on whether you have a service-connected disability or a nonservice-connected disability.

Service-connected compensation. Service-connected compensation is not a pension benefit; rather, it is disability compensation for injuries or diseases that occurred while on active duty or were made worse by active military service. Essentially, it awards you a certain amount of monthly income to compensate for potential loss of income in the private sector due to a disability, injury, or illness incurred in the service. To qualify, your active-duty discharge must be above the dishonorable level.

Service-connected pension. Veterans and their spouses use two types of service-connected pension benefits to pay for long-term care: (1) Aid and Attendance and (2) Housebound. You must be permanently disabled and confined to your home to be eligible for a Housebound pension. The VA assesses your eligibility for Aid and Attendance based on three criteria: (1) wartime service, (2) declining health, and (3) limited financial resources.

The wartime service requirement is specific to the veteran. You must have at least 90 days of active service, including at least 1 day within a defined wartime period. The VA recognizes the following wartime service periods:

  • World War II: December 7, 1941, to December 31, 1946
  • Korean conflict: June 27, 1950, to January 31, 1955
  • Vietnam era: February 28, 1961, to May 7, 1975 (in country) and August 5, 1964, to May 7, 1975 (generally)
  • Gulf War: August 2, 1990, to a date that will be determined by a future law or a presidential proclamation

The need for health care focuses on the condition of the applicant, not the veteran. For example, a healthy veteran may apply for Aid and Attendance to assist his or her spouse. In some cases, a veteran’s surviving spouse may need a personal care assistant. The VA determines the need for health care based on whether the applicant requires help with at least two of the following activities of daily living: (1) bathing, (2) eating, (3) dressing, (4) using the bathroom, and (5) transferring from a chair or bed. The applicant will also meet the health care requirement if he or she needs skilled nursing care or is legally blind.

The VA will assess income and net worth to determine financial eligibility for Aid and Attendance. It considers all sources, including social security benefits, and deducts household and medical expenses to calculate monthly net income. The net worth will include retirement assets. Different sources cite $80,000 as the maximum net worth you can have to qualify for Aid and Attendance. The VA does not list this amount in its regulations; however, it will look at other factors, such as age, when it assesses net worth and financial eligibility.

Other pension benefits. The VA pension programs benefit veterans who have limited income and, in some cases, health problems unrelated to service. Pension benefits are available to you only if you received a discharge other than dishonorable. Currently, veterans receive three types of pensions: Improved, Old Law, and Section 306. Only the Improved Pension is available to new applicants, however.

You are eligible for Improved Pension benefits if you are 65 and older; served at least 90 days of total active service, 1 day of which was during a wartime period; and have limited income and assets that are not excessive. If you are younger than 65, you may be eligible for Improved Pension benefits if you are permanently and totally disabled.

The amount of Improved Pension benefits you receive depends on your marital status, whether you have dependent children, and whether you are able to care for yourself. Pension benefits are designed to supplement your other sources of income, and the VA pays you the difference between your countable family income and your yearly income limit. Pension benefits are generally paid in 12 equal monthly installments, rounded down to the nearest dollar.

Keep in mind: The VA takes into consideration certain expenses paid by you—such as those related to medical care, education, or the last illness or burial of a dependent—when calculating your countable family income. In addition, some sources of income will not reduce your pension benefit. These include Supplemental Security Income, welfare benefits, and some wages earned by dependent children.

Death pension. A fixed monthly pension is available to qualified survivors of low-income veterans. The monthly benefit amount depends on other sources of income and the number of dependents.

Don’t assume: Apply! Many veterans are not getting benefits because they assume they don’t qualify. No matter your circumstances, it is well worth your while to apply for VA assistance. If your claim is denied, you can appeal the decision and may receive benefits on the second try.

Where to apply

You can apply for federal benefits by going to http://vabenefits.vba.va.gov/vonapp, by calling 800.827.1000, or by visiting your regional Veterans Affairs Office. (Please note: Each state offers Veteran Service Officers who assist with determining eligibility for benefits and the application process. They represent their state’s veterans during the federal and state benefits process.)

Third-party assistance with applications

Applying for benefits can be daunting, and you may find individuals or organizations that charge a fee to advise you on the process. Just remember: only the veteran, an accredited Veterans Service Organization, or an accredited VA attorney may apply for benefits on behalf of a veteran. The rules are strict—no one else can file a claim. Also, neither an accredited VA attorney nor an accredited organization may charge a fee to file an application for veteran benefits.

It’s also important to know that firms unrelated to the VA market financial products to veterans. These products are usually annuities and are sold on the basis that they will facilitate eligibility for benefits. You should discuss the financial product offered with your adviser to determine its tax implications and its impact on your overall financial plan.

This material has been provided for general informational purposes only and does not constitute either tax or legal advice. Although we go to great lengths to make sure our information is accurate and useful, we recommend you consult a tax preparer, professional tax advisor, or lawyer.

Matthew Lang is a financial advisor located at 236 N Washington St, Monument, CO 80132. He offers securities and advisory services as an Investment Adviser Representative of Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. He can be reached at 719-481-0887 or at matt@langinvestmentservices.com.

 

© 2018 Commonwealth Financial Network®

Trade War

Is It Time to Worry About a Trade War?

On March 1, 2018, President Trump announced that the U.S. plans to impose tariffs on steel and aluminum imports. Markets around the world were shocked by the news, with major U.S. indices declining more than 1 percent just when it looked like they were recovering from the February downturn. Why did markets react so strongly? Is this a more serious threat going forward? In a word, yes.

First, let’s define what’s going on and why it matters.

A closer look at tariffs

The good. Tariffs are a charge on imports—essentially, a tax. Say a ton of steel costs $100. The 25-percent tariff Trump proposed would require the seller to pay $25 to the U.S. government. That would, in effect, mean the seller has to choose between selling the steel for $75, raising the price to $125 to net the same amount, or doing something in between. Practically, sellers will raise prices. This is the desired outcome, as it will allow producers here in the U.S. to sell their products for higher prices. Therefore, these tariffs are good for the steel and aluminum industries.

The bad. The problem is that they are bad for anyone else that uses steel or aluminum, such as car manufacturers, builders, and the energy industry. Their input costs have just gone up substantially. According to a UBS analyst, Ford’s costs just went up by $300 million, while GM’s went up by $200 million. Other companies will be similarly affected.

Companies like Ford and GM will have two choices here:

  1. They can raise prices, which will start to push up inflation; or
  2. They can eat the higher costs and make less money.

Either way, this is bad for the stock market, as it plays out across the economy. Both higher inflation and lower profits make stocks worth less—hence, the market reactions around the world.

Waiting for the world to react

These are only the first-order effects, of course. The next shoe to drop will be how other countries respond. If we are lucky, they will take legal action through multilateral bodies such as the World Trade Organization, which will result in negotiations. If we are unlucky, they will start imposing retaliatory tariffs of their own, targeted to cause maximum pain to the U.S. economy. We don’t know what those will be. But we can be quite sure they will be designed to hit the U.S. economy as hard as possible, in order to force us to remove the tariffs. This is how trade wars start, so it will be critical to watch those responses.

The next set of effects will be geopolitical. When you look at the actual sources of steel and aluminum imports, Canada tops the list. By angering and damaging our closest neighbor—at the same time as we are trying to renegotiate NAFTA—the possible damage just increases.

The net effect of the tariffs, then, will be economic damage, higher inflation, and greater geopolitical uncertainty. On the corporate side, it will be lower profits for the vast majority of companies. On the consumer side, it will be higher prices for many goods and, likely, lost jobs in export industries. That is why this issue is worth watching closely.

Pay attention, but don’t panic

That said, there is a real possibility that this is either a trial balloon or a negotiating tactic. The U.S. has tried to impose tariffs before, only to pull back as the costs became clear. Trump’s announcement is not the same as actual action. This could all pass away, particularly as the rapid market response shows very clearly the potential costs. It is too early to be overly concerned, but we should definitely pay attention.

Certain sections of this commentary contain forward-looking statements based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict.

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 Matthew Lang is a financial advisor located at 236 N Washington St, Monument, CO 80132. He offers securities and advisory services as an Investment Adviser Representative of Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. He can be reached at 719-481-0887 or at matt@langinvestmentservices.com.

Authored by Brad McMillan, managing principal, chief investment officer, at Commonwealth Financial Network®.

 © 2018 Commonwealth Financial Network®

Division of assets

Dividing Retirement Assets at Divorce

For many couples, retirement assets represent a significant portion of net worth. During a divorce, in order to split assets equitably, most couples divide the benefits available in their employer retirement plans and the money they invested in their individual retirement accounts.

Court-ordered division of assets

The rules for splitting accounts are unique to each type of retirement account, but one rule is uniform: To avoid current taxation, the division of the retirement accounts must be done as a result of a court-ordered property division, divorce, or separation agreement.

  • Qualified domestic relations order (QDRO): Before a traditional pension, 401(k), 403(b), or 457(b) plan can be divided, a document called a QDRO is needed. A QDRO is a court order that tells the retirement plan administrator how to divide the retirement assets. In the QDRO, the employee is referred to as the participant spouse, and the recipient of the assets is called the alternate payee. In lieu of a QDRO, some employers prefer to provide their own standardized form for court approval.
  • Transfer of account incident to a divorce: IRAs, including traditional, Roth, SIMPLE, and SEP accounts, can also be divided by a court order. The term for dividing an IRA or nonqualified annuity between the IRA owner and the former spouse is a transfer of account incident to a divorce. Note that without the specific direction of a court-approved settlement, a transfer of part of an IRA to a spouse or former spouse will trigger taxes. The IRA owner, not the former spouse, is responsible for the taxes and any penalties due.

Separating the benefits

Retirement plans. As noted above, prior to making any changes to a participant spouse’s plan benefits, employers require a QDRO document, signed by a judge. Before the QDRO is written and issued, it is a best practice to talk with your or your former spouse’s retirement plan administrator about plan requirements. Once the QDRO is written, it takes a court order to make corrections or changes.

Depending on individual plan rules, benefits may separate immediately (the separate interest approach) or at the participant spouse’s earliest retirement eligibility (the shared payment approach).

  • With the separate interest approach, the alternate payee’s benefits are assigned immediately but may not be accessible until a later date.
  • With the shared payment approach, benefits for the alternate payee are available only when they become available to the participant spouse.

IRAs. Practices and requirements among IRA custodians differ. The key to a successful transfer is to have a settlement agreement that clearly specifies the accounts to be transferred. Under Internal Revenue Code Section 408(d)(6), this transfer is intended to be tax-free.

There are two basic ways to split up an IRA. The most common method of transfer is to segregate the assets into a new IRA for the former spouse. Alternatively, a check can be cut to the recipient spouse, who has 60 days to open his or her own IRA to avoid taxes.

Additional important details regarding QDROs

Employer plans can be categorized as defined contribution, like the popular 401(k) plans, and defined benefit, commonly called pensions. A defined contribution plan has readily ascertainable account balances. These are usually split shortly after a divorce has been finalized.

A defined benefit is typically paid as a monthly benefit at retirement. With the separate interest model, the former spouse is treated as an employee, and benefits are paid until his or her death. With a shared interest model, benefits usually stop at the participant spouse’s death, even if the former spouse is still alive.

A former spouse qualifies for a survivor annuity only if the QDRO clearly provides it and the retirement plan can accommodate it. If the plan cannot provide survivor benefits to a former spouse, or if the former spouse’s claim ends at the participant spouse’s remarriage, the former spouse may consider life insurance as an alternative means of income.

If the QDRO specifies payout instructions not offered by the retirement plan, it cannot be honored; however, the QDRO can require early retirement benefits for the alternate payee even if the participant spouse chooses to delay retirement.

Unlike an alimony award, retirement plan property settlements are not generally severed when a former spouse remarries.

Tax issues

QDROs. Which party is responsible for taxes? It depends on whether a separate account has been set up for the former spouse or whether monies are paid out of the participant spouse’s benefits. With separate accounts, each party is responsible for his or her own taxes. With shared benefits, all taxes are paid by the participant spouse.

Note that a QDRO-ordered distribution to a child or other dependent is always taxed to the participant spouse.

One of the advantages of a QDRO is that the 10-percent penalty does not apply for early withdrawals from a 401(k), 403(b), or 457(b) plan made to a former spouse who is younger than 59½; however, the mandatory 20-percent withholding tax does. To avoid the tax on monies intended for IRA rollover, elect a direct transfer to the new IRA custodian.

Divided IRAs. Remember that an informal or mediated agreement between spouses to divide individual IRA assets is not recognized by the IRS and will result in taxes. Also, unlike with QDROs, a divorce does not qualify as an exception to the 10-percent early withdrawal penalty for IRA distributions prior to age 59½.

Special situations

The former spouses of military members may receive up to 50 percent of the military member’s retirement pay if the couple was married for at least 10 years. Because the military uses the shared benefit model, benefits to the former spouse begin only after the military member elects retirement. Benefits continue until the retiree’s life expectancy, unless the retiree elects a survivor benefit plan. The survivor benefit can be lost if the former spouse remarries before age 55.

 State, local, and municipal retirement systems offer fewer options for dividing marital assets. The retirement plans of some states do not allow the assignment of benefits, even to a former spouse.

Other types of government retirement benefits are the Federal Employees Retirement System (FERS) and the Civil Service Retirement System programs for federal retirees. The correct term for the division of assets of federal retirees is not QDRO but Court Order Acceptable for Processing. FERS also uses the shared benefit model, so a rollover to an IRA is unavailable.

Social security is available to former spouses who were married for more than 10 years. The rules for receiving benefits as a former spouse are the same as for current spouses. For example, if a former spouse reaches full retirement age, he or she will receive the higher of his or her own work-related benefit or 50 percent of the worker’s full retirement benefit. At the worker’s death, the former spouse can receive up to 100 percent of the decedent’s social security benefit, reduced for the former spouse’s early retirement. These benefits are available even if the worker remarries or if the former spouse remarries after he or she turns 60. Payments to former spouses do not reduce the worker’s or the current spouse’s benefits.

Nonqualified annuities can be divided between divorcing spouses without triggering taxes, based on the instructions of the court-approved settlement document. Because each insurance company has its unique requirements, it is wise to communicate with the carrier before the final divorce decree. You may find that existing surrender charges will be applied.

Many executives also participate in nonqualified deferred compensation plans. Because a nonqualified plan is not subject to ERISA rules, a QDRO is not used to set aside benefits for the former spouse. A division of the assets of the nonqualified deferred compensation plan will not shift the tax liability to the former spouse.

Stock options also pose challenges in property division. The date chosen for determining asset value is crucial. Value can differ widely, depending upon whether it is based on the date of the initial separation, the date on which the divorce was finalized, or the date of option vesting.

Consult a professional

Because valuing and dividing a couple’s assets is complex, consider bringing in a third-party professional such as your financial planner or a Certified Divorce Financial Analyst (CDFA). Experienced with valuing retirement plans and employee benefits, a CDFA professional can act as an advisor to your attorney or as a mediator for you and your former spouse to help in pursuing an equitable settlement.

This material has been provided for general informational purposes only and does not constitute either tax or legal advice. Although we go to great lengths to make sure our information is accurate and useful, we recommend you consult a tax preparer, professional tax advisor, or lawyer.

 Matthew Lang is a financial advisor located at 236 N Washington St, Monument, CO 80132. He offers securities and advisory services as an Investment Adviser Representative of Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. He can be reached at 719-481-0887 or at matt@langinvestmentservices.com.