September 2015

1. Is my spouse responsible for my student loans when I die?

This is a great question, but the answer depends on whether it is a federal or private loan. According to the U.S. Department of Education, if you die while owing federal student loans, your loans will be discharged as long as a family member or other representative provides a certified copy of your death certificate to your loan servicer. This applies even if you live in a community property state such as California.

Private loans, on the other hand, are more complicated and depend on several factors: your state of residence, when the debt was incurred, and whether or not your spouse cosigned for the loan. A private lender will always try to collect any money owed, even after you die, from your estate or from your living spouse. If you live in a community property state or your spouse cosigned for the loan, he/she will likely be held responsible for the debt upon your passing. However, if you have kept your accounts separate, there may be some relief as long as you are able to prove you did not commingle assets. Additionally, if the debt was incurred prior to your marriage, you may be able to prevent lenders from holding your spouse responsible for your debt.

2. Can I use the money in my IRA for a downpayment on a house?

While we do not advocate withdrawing money from your retirement account for any reason other than retirement, we (and the IRS) understand that purchasing a home requires a significant amount of funds for a down payment. Therefore, the IRS allows you to withdraw up to $10,000 from your traditional, SEP, or SIMPLE IRA to use for the downpayment of your first home without incurring the 10 percent early withdrawal penalty (if you are under age 59.5). If your spouse also has an IRA, you can withdraw $20,000 (from each individual account) without incurring the 10 percent early withdrawal penalty. It is important to note that while you can avoid the 10 percent penalty, you will still owe tax on the amount you withdraw (unless you have a Roth IRA) and the distribution may bump you into a higher tax bracket.

Instead of withdrawing from your retirement account, there is another option that many are unaware of.  You may temporarily withdraw all the money that you need from your IRA, purchase the house of your dreams, and then redeposit the money back into your IRA within 60 days. This is referred to as a 60-­day rollover and only allowed once a year without penalty or tax implications.

3. Can I deduct my life insurance premiums or deduct them as a business expense?

You cannot deduct life or disability insurance premiums from your personal tax returns (Refer to IRS Publication 502 for more details on the deductibility of insurance premiums.) As for deducting life insurance premiums as a business expense, this is much more complicated and depends on several factors: what is the type of business entity (C­Corp, S­Corp, LLC, etc...); if a corporation, do you own more than 2 percent of the corporation; who is the beneficiary of the policy; who owns the policy; and, who will benefit from the policy. In other words, there is no short answer to this question. Before you deduct an insurance premium as a business expense, we strongly recommend you speak with a qualified advisor to understand all the tax ramifications and the legality of such a deduction.