Podcast/Blog

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11 States To Retire In With A Fixed Income

You may want to look into moving in retirement for several reasons. Cost of living, Location, Amenities, Taxes and Healthcare are only a few of the considerations. Here are 11 states that take the cake when looking at making your retirement location work for you.

The Gist: You may want to look into moving in retirement for several reasons. Cost of living, Location, Amenities, Taxes and Healthcare are only a few of the considerations. Here are 11 states that take the cake when looking at making your retirement location work for you.

Money In The News: What is a 45 million dollar coin doing on Wall Street? Richard Hays from the Perth Mint in Australia wants you to know all about it.

Anderson Cooper CNN Superstar and Vanderbilt heir only gets 1.5 million inheritance from Gloria Vanderbilt, once thought to me be 200 million estate.

Sneakers are going on auction at Sotheby’s for estimated 160k – 190k.

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Show #100 DIY Retirement Road Rules

Show #100 is a doozy with all sorts of advice for our DIY retirement listeners.

Money in the News: Streaming services are turning up the heat with all new lineups of movies, series, startups and buyouts. Who will lead the pack and who takes over your vote as the number one streaming service.

Airbus overtakes Boeing as the largest airplane manufacturer in the world.

Main Topic: We love people coming to us just wanting to get the basics of what to do when creating a retirement plan. Creating your own retirement plan at some level is what all of us are doing and everyone needs to understand some basics around the rules of the road to retirement planning. Here you go. Ten rules to pay attention to when building this thing from the ground up. Oh here is one more for you. Start NOW!

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401(K) Tune Up

The Gist: A salute to Fathers – appreciating and honoring Fathers through thoughtful and humorous quotes. ..Tips on growing your IRA/401K – things to do and not to do.

Today’s main topic: Seth and Ben talk about transition support for our aging parents. An enormous conversation that details many aspects that need to be considered as the end of life approaches. Seth and Ben offer five tips to the family when dealing with the most important area of helping our parents.  

Money in the News: Robocall Revenge. One techie turned the tables on a robocaller accessing the culprit’s computer and creating havoc for his scamming operation.

Facebook and other large companies enter the crypto currency world while at the same time Facebook is being dumped from an S&P index that tracks socially responsible companies.

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2 Truths and a Lie

Property and Casualty Insurance go hand in hand with financial planning.

Property and Casualty

The Gist: Property and Casualty Insurance go hand in hand with financial planning.  Today Erik Morton helps us understand the importance of protecting our property with the appropriate amount of coverage (thus property) as well as protecting ourselves against a lawsuit in the event we are found responsible for another’s injury or the damage of another’s belongings (casualty). Erik will help us separate the truth from the myths about Property and Casualty Insurance so we can confidently include it in our financial planning portfolio.

Money in the News: Marriott takes on Airbnb in the home rental market. Airbnb, the very industry that was inclined to interrupt the hotel industry now has Marriott in an “if you can’t beat ‘em, join ‘em” effort with Marriott’s version of airbnb called, “Homes and Villas.” “People stay at different hotels for different purposes, Stephanie Linnartz, the global chief commercial officer at Marriott, told the Times. Home sharing is another offering.”

Rethinking the Everyday Coffee Cup – and Creating a New Business – from the Wall St. Journal. A couple creates a unique coffee cup for the husband’s World War II veteran grandfather. Using their science background, the couple found a way to lessen the stress of holding a cup making it much easier to be handled by the elderly or anyone with difficulty balancing a normal cup.

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Monte Carlo

On this Money on Tap we look at Monte Carlo simulation to help us understand the impact of risk and uncertainty when it comes to financial forecasting models. It helps us see many of the potential outcomes and the potential risk of those decisions.

More Than A Nice Place To Visit

The Gist: On this Money on Tap we look at Monte Carlo simulation to help us understand the impact of risk and uncertainty when it comes to financial forecasting models. It helps us see many of the potential outcomes and the potential risk of those decisions.

Money in the News: A man returning his Pixel 3 phone for a refund to Google for $900 does not get the refund – instead he is sent 10 MORE Pixel 3 phones totaling about $9,000 dollars. An obvious error the man and Google are trying to work it out.

Check your house for this stuff – What kinds of things in your house might be worth big money: Boy Scout memorabilia, 2005 irregular Kansas Quarter, and others.

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Death and Taxes…Smile :)

The grim reality of that special day that comes every year – Tax Day! Today we look at that dreaded day and some of the things you should be aware of and how it may affect you.

The Gist: The grim reality of that special day that comes every year – Tax Day! Today we look at that dreaded day and some of the things you should be aware of and how it may affect you.

Money in the News: Today we explore an article in The Wall Street Journal, “Death-Care Stocks have made a killing for investors. Now Its time to say goodbye.” Over the past decade, the two leading U.S. providers of funeral and cemetery services have exceeded performance in the stock market but recent competition including on-line options (and the “Amazon-Effect) have heavily cut into the profit margins of these previous leaders in the industry.

Tax Refunds: Tax laws have found less people itemizing their returns. Tax cuts have been phenomenally strong for property renters. The married, filing jointly deduction has doubled.

Motley Fool article: Bigger Tax Refunds Are Back. Here’s Why. The refund scare might’ve been much ado about nothing. Tax reform of early 2018 lead many to think they would be getting a much lower return but as tax season has progressed evidence is showing larger returns in more pockets. The better news is that many are finding more in their paychecks as well.

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Legacy Planning

Preparing your legacy for the generation to follow is best done proactively before the deathbed, putting all the legal pieces in place while there is time to make sound judgment decisions.

Synopsis: Preparing your legacy for the generation to follow is best done proactively before the deathbed, putting all the legal pieces in place while there is time to make sound judgment decisions. On this program, we’ll look at some different areas that need to be addressed to make the transition from one generation to the next as smooth as possible.

Money in the News:.  If it ain’t broke, don’t fix it. A Wichita Kansas couple comes to the same eating establishment 6 days a week ordering nearly the same meal – something they’ve done for the last 15 years! Ron and Diana Watson aren’t much for doing their own cooking so they’ve made The Texas Roadhouse their permanent home for just about all their eating claiming they can eat healthy and spend just about as much there as they would on groceries. . . Considering the recent college admissions scandal where celebrities for paying huge sums of money to get into their kids into prestigious schools, one individual was running an operation whereby he would take the SAT tests for a high school student and charge $10,000 to get the needed results.

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The Power of Life Insurance

Synopsis: Discussing Life insurance at a Party may be a conversation crusher but understanding the importance of being properly insured and how it can bring peace of mind is a hugely necessary conversation. Find out on today’s show how The Power of Life Insurance can make a big difference in an emergency.

Money in the News: Dubai International Boat Show 2019 features Yachts for the billionaire with cruisers so large some have designated space for “toys,” such as  helicopters, jet skis, etc –  some are even created as floating vessels with capabilities of housing laboratories for marine biologists. . .PXG (Parson’s extreme Golf) in Scottsdale AZ specializes in making custom sets of golf clubs for the wealthy who are happy with shelling out $50,00 to $75,000 per set of clubs often purchasing four sets at a time.

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Investing With Your Money Passive & Tactical Investing

Passive and Tactical Investing

Synopsis:  Looking at a couple of methods of investing: Passive and Tactical. Exploring the major differences between the two and identify the pros and cons. Why you might choose a more conservative investment over an aggressive one. Also a look at Risk Tolerance.

Money in the News:  Ninety-Three year old Iowa man has his wedding ring returned forty-five years after it went missing. Was found in the engine of a car he had sold and was returned by the car’s new owner.

Rare 1943 bronze Lincoln penny sell for $204,00 at Florida auction.

John looks at some of the YouTube top earners – the top one being a seven year old boy who made 22 million playing with toys.

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The Most Wonderful Time of the Year

Synopsis:  A rundown of how the market turned out in 2018. The last quarter was a particular challenging year and December was especially volatile in 2018.

Money in the News:  Portland Oregon man locked in Burger King Bathroom for an hour. As compensation, local manager offers man free Burger King Meals for life until district manager decides to quit the free meals. Man threatens to sue.

Elusive artist hatches elaborate plan to have his famous “Banksy’s Girl with Balloon,” automatically shredded as painting was being sold at Sothebys.

Important points of discussion:

Financial planning in 2019:

  1. Habits we want to employ
  2. Setting financial goals to make this a better year
    1. Have a budget in place for your household
    1. Getting out of debt
    1. Start saving money
Featured

The Do’s and Don’ts of Market Volatility

The market is currently a nightmare but fortunately market nightmares do end and preparing for nightmares can be better too. Volatility in the market can be a scary thing and cause us to react out of fear. Ben, John and Seth help us to make wise, proactive decisions in an unpredictable environment. Seek the help of professional financial planners who will step up to the plate for you rather than a huge financial institute who will may only offer you passive guidance.

Money in the News:  KFC offers fireplace logs as well as sunscreen that smells like fried chicken.

Eighteen hundred companies left California over the course of the year with most bound for Texas. Legal aggravation and higher taxes share the blame. Businesses feel Texas would treat them more fairly.

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The Return of The Retirement Tsunami

Because every horrific show deserves a sequel.

In the next 20 plus years a huge wave of individuals will be retiring in what is being called The Retirement Tsunami. In part two of The Retirement Tsunami, we’ll look at Solutions – steps investors can take to help make things better in retirement years. Making better decisions with knowledge that can impact the future. . . . What is it like when you use the services of a financial planner? Ben, John and Seth give us a better understanding of what to expect.

Money in the News: A unique opportunity for Buffalo Bills fans to get a free ticket to a game by shoveling snow at the stadium before the game. . .’Paper mill’ owner makes $21,000 a month through fraudulent means by writing papers for college students.

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Property & Casualty Insurance…Looking For The Right Coverage

Welcome Erik Morton, Insurance Agent heading up the Brayshaw Financial Division from Vancouver WA, (specializing in property casualty insurance) shares the importance of being properly insured with the right kind of insurance and the right amount of coverage.

Money in the News: The tax impact from lottery winnings (referring to recent Billion dollar lottery), the astronomical odds of winning the lottery. . . Seventeen year old gamer Nick Overton made half a million dollars by playing Fortnite due to his exceptional level of skill with the game.

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Retirement Tsunami

In the next 20 plus years a huge wave of individuals will be retiring in what is being called The Retirement Tsunami.

In the next 20 plus years a huge wave of individuals will be retiring in what is being called The Retirement Tsunami.  What will that look like and what kind of impact will that have on both retirees and future retirees? What will that mean for investors? Join us on today’s Money on Tap as we take a closer look at this growing issue.

Guest: Erik Morton – Property and Casualty Insurance with Brayshaw Financial, Vancouver WA.

Money in the News: Amazon’s landing in Seattle seems to be paying off. They are hopeful for similar results with new locations in Alexandria VA and New York NY. Today Ben, John and Seth discuss the cultural impact Amazon has on a community like Seattle, Alexandria and New York and how it affects our way of life economically and in our purchasing habits.

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January 19′ Market Update

Happy New Year to every one of our valued clients and friends! We hope that 2019 is a terrific year for you and your family! At Brayshaw Financial Group we have a passion for helping our clients find success.

Happy New Year to every one of our valued clients and friends!  We hope that 2019 is a terrific year for you and your family!  At Brayshaw Financial Group we have a passion for helping our clients find success.  Despite the challenges of the market this past year, we feel we have done an excellent job helping our clients, step by step.  Over the years, our clients have looked to us to provide sound financial advice and 2018 was no exception.

Let’s take a look back….

As most of you are aware, this past year in the market was especially volatile.  It was, in fact, the worst year for stocks since 2008.  The Dow Jones Industrial Average (DJIA) was down 5.63%, the S&P 500 Index was down 6.24%. and the Nasdaq Composite Index was off 3.88%.  While there were a lot of negatives in 2018, there were also a lot of positives.  The S&P 500 reached a record high on September 20th and the Dow closed at a record high on October 3rd

Despite some records being set, 2018 will be remembered for its extreme volatility.  Did you know that the Dow has swung 1,000 points in a single session only 8 times in history?  Five of those swings took place in 2018!  This volatility was being driven by signs of a global economic shutdown, interest rate hikes by the Fed, political dysfunction, fears of inflation and increased government regulation of the technology sector.

In times like these, it’s easy to get nervous when you have money invested in the markets.  At Brayshaw Financial Group, we have several different strategies we employ to help mitigate risk.  Although we advise lower cost passive strategies, we also implement several tactical strategies for clients needing a more “hands-on” and active approach to managing their money.  It is our belief that tactically managed assets will greatly help to preserve capital and diminish losses during volatile markets. 

In November 2018, most of our tactical portfolios were moved to cash and cash equivalents.  With less than 10% of our assets exposed to the short-term bond market space, the impact felt from negative markets to our client’s tactical allocations was minimal.

Historically since 1950, no other month has posted a higher average return than December.  In fact, over the last 100 years, the Dow has averaged a gain of 1.55%, with gains 74% of the time. * 

December 2018 was vastly different.  The Dow dropped 8.66%, the S&P 500 plummeted by 9.18%, and the NASDAQ was down 9.48%. 

Our tactical managers helped our clients tremendously, as their skillful portfolio decisions helped our clients avoid this dangerous time in the market. 

In addition to the tactical money management portfolios, we also use other approaches to help minimize risk in our client’s broader investment.  Using annuities and insurance linked with income riders, we have successfully helped to protect our client’s current and future incomes.  These products, when appropriately paired with other investments, have given our clients a level of downside protection through volatile markets.

Looking ahead…

If you are currently working with us and haven’t recently taken the opportunity to review your portfolio, we’d love nothing more than to sit down with you, review your accounts and to see how we can be of more help to you going forward. 

If you do not currently have a relationship with our firm, then feel free to give us a call.  We offer a no-cost, no obligation consultation that will help you better understand the services we provide. How we can assist you defining and ultimately reaching your financial goals.

While there is no doubt that 2018 was a volatile year, we firmly believe that 2019 will be no different.   Let us help put a plan in place.  Take the next step with us!

*Returns featured can be found at investing.com

The Move Toward Fee-Based Advisory Accounts

**Marketwatch.com 12/4/2018

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The Retirement Trap – You Never Saw Coming

A lot of fun on this episode. We get into some ways people lock themselves into or out of options in retirement and get to spend some time with Jobin Roofing.

A lot of fun on this episode. We get into some ways people lock themselves into or out of options in retirement and get to spend some time with Jobin Roofing. The Jobin brothers, Casey and Brendan, are a story of family togetherness. Add plus one Alex Payne, become a story of passion for their customers, persevering through adversity and transforming into a unique group of problem solvers. We hope you enjoy our journey with them and discover some ways you too may find joy along your path less traveled.

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The No Judgement Zone!

We have all felt the irritation and pain of being judged. Many of us are even critical of ourselves. Welcome to the No Judgement Zone, prepare to rid ourselves of limiting mindsets and start talking about dreams and goals. Even better lets start creating a plan on how to accomplish them.

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Why Do People Put Off Saving For Retirement?

A lack of money is but one answer.

 Common wisdom says that you should start saving for retirement as soon as you can. Why do some people wait decades to begin? 

Nearly everyone can save something. Even small cash savings may be the start of something big if they are invested wisely.  

Sometimes, the immediate wins out over the distant. To young adults, retirement can seem so far away. Instead of directing X dollars a month toward some far-off financial objective, why not use it for something here and now, like a payment on a student loan or a car? This is indeed practical, and it may be necessary. Even so, paying yourself first should be as much of a priority as paying today’s bills or paying your creditors. 
Some workers fail to enroll in retirement plans because they anticipate leaving. They start a job with an assumption that it may only be short term, so they avoid signing up, even though human resources encourages them. Time passes. Six months turn into six years. Still, they are unenrolled. (Speaking of short-term or transitory work, many people in the gig economy never get such encouragement; they have no access to a workplace retirement plan at all.)

Other young adults feel they have too little to start saving or investing. Maybe when they are further along in their careers, the time will be right – but not now. Currently, they cannot contribute big monthly or quarterly amounts to retirement accounts, so what is the point of starting today?

The point can be expressed in two words: compound interest. Even small retirement account contributions have potential to snowball into much larger sums with time. Suppose a 25-year-old puts just $100 in a retirement plan earning 8% a year. Suppose they keep doing that every month for 35 years. How much money is in the account at age 60? $100 x 12 x 35, or $42,000? No, $217,114, thanks to annual compounded growth. As their salary grows, the monthly contributions can increase, thereby positioning the account to grow even larger. Another important thing to remember is that the longer a sum has been left to compound, the greater the annual compounding becomes. The takeaway here: get an early start.1  

Any retirement saver should strive to get an employer match. Some companies will match a percentage of a worker’s retirement plan contribution once it exceeds a certain level. This is literally free money. Who would turn down free money? 

Just how many Americans are not yet saving for retirement? Earlier this year, an Edward Jones survey put the figure at 51%. If you are reading this, you are likely in the other 49% and have been for some time. Keep up the good work.2

Citations.

1 – bankrate.com/calculators/savings/compound-savings-calculator-tool.aspx [6/21/18]

2 – forbes.com/sites/kateashford/2018/02/28/retirement-3/ [2/28/18]

Building Your Financial House part I

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Should You Leave Your IRA to a Child?

What you should know about naming a minor as an IRA beneficiary.  

By Money On Tap  

Can a child inherit an IRA? The answer is yes, though they cannot legally own the IRA and its invested assets. Until the child turns 18 (or 21, in some states), the inherited IRA is a custodial account, managed by an adult on behalf of the minor beneficiary.1,2  

IRA owners who name minors as beneficiaries have good intentions. Their idea is to “stretch” a large Roth or traditional IRA. Distributions from the inherited IRA can be scheduled over the (long) expected lifetime of the young beneficiary, with the possibility that compounding will partly or fully offset them.2

Those good intentions may be disregarded, however. When minor IRA beneficiaries become legal adults, they have the right to do whatever they want with those IRA assets. If they want to drain the whole IRA to buy a Porsche or fund an ill-conceived start-up, they can.2 

How can you have a say in what happens to the IRA assets? You could create a trust to serve as the IRA beneficiary, as an intermediate step before your heir takes possession of those assets as a young adult.

In other words, you name a trust as the beneficiary of your IRA, and your child or grandchild as a beneficiary of the trust. When you have that trust in place, you have more control over what happens with the inherited IRA assets.2 

The trust can dictate the how, what, and when of the income distribution. Perhaps you specify that your heir gets $10,000 annually from the trust beginning at age 30. Or, maybe you include language that mandates that your heir take distributions over their life expectancy. You can even stipulate what the money should be spent on and how it should be spent.2 

A trust is not for everyone. The IRA needs to be large to warrant creating one, as the process of trust creation can cost several thousand dollars. No current-year tax break comes your way from implementing a trust, either.2

In lieu of setting up a trust, you could simply name an IRA custodian. In this case, the term “custodian” refers not to a giant investment company, but a person you know and have faith in who you authorize to make investing and distribution decisions for the IRA. One such person could be named as the custodian; another, as a successor custodian.2

What if you designate a minor as the beneficiary of your IRA, but fail to put a custodian in place? If there is no named custodian, or if your named custodian is unable to serve in that role, then a trip to court is in order. A parent of the child, or another party who wants guardianship over the IRA assets, will have to go to court and ask to be appointed as the IRA custodian.2

You should also recognize that the Tax Cuts & Jobs Act reshaped the “kiddie tax.” This is the federal tax on a minor’s net unearned income. Required minimum distributions (RMDs) from inherited IRAs are subject to this tax. A minor’s net unearned income is now taxed at the same rate as trust income rather than at the parents’ marginal tax rate.3,4

This is a big change. Income tax brackets for a trust or a child under age 19 are now set much lower than the brackets for single or joint filers or heads of household. A 10% rate applies for the first $2,550 of taxable income, but a 24% rate plus $255 of tax applies at $2,551; a 35% rate plus $1,839 of tax, at $9,151; a 37% rate plus $3,011.50 of tax, at $12,501 and up.3,5

While this is a negative for middle-class families seeking to leave an IRA to a child, it may be a positive for wealthy families: the new kiddie tax rules may reduce the child’s tax liability when compared with the old rules.4

One last note: if you want to leave your IRA to a minor, check to see if the brokerage holding your IRA allows a child or a grandchild as an IRA beneficiary. Some brokerages do, while others do not.1

Citations.

1 – investopedia.com/articles/retirement/09/minor-as-ira-beneficiary.asp [6/19/18]

2 – kiplinger.com/article/retirement/T021-C000-S004-pass-an-ira-to-young-grandkids-with-care.html [5/17]

3 – forbes.com/sites/ashleaebeling/2018/05/08/the-kiddie-tax-grows-up/ [5/8/18]

4 – tinyurl.com/y7bonwzx [5/31/18]

5 – forbes.com/sites/kellyphillipserb/2018/03/07/new-irs-announces-2018-tax-rates-standard-deductions-exemption-amounts-and-more/ [3/7/18]

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Keeping This Correction in Perspective

After 20 months of relative calm, this volatility needs to be taken in stride.

After 20 months of relative calm, this volatility needs to be taken in stride.

Money On Tap

Are you upset by what is happening on Wall Street? It may help to see this pullback within a big-picture context. Corrections have become so rare as of late that when one occurs, emotion threatens to influence investment decisions.

So far, February has been a rough month for equities. At the close on February 8, the Dow Jones Industrial Average was officially in correction territory after a slide occurred, which included two 1,000-point descents within four days. Additionally, nearly every U.S. equity index had lost 7% or more in the past five trading sessions.1,2

This drop is troubling, yes – but not as unsettling as it may first seem. The market has been up for so long that it is easy to dismiss the reality of its occasional downs. Last year’s quiet trading climate could legitimately be characterized as “abnormal.”

Prior to this current retreat, the S&P 500 had not fallen 5% from a peak since June 2016. It went more than 400 trading days without such a slump, setting a record. In this same calm stretch, the index also went through its longest period without a dip of 3% or more.3

During a typical year, there are five trading days when equities descend at least 2%, plus one correction of about 14%. On average, equities take roughly a 30% fall every five years.4

This year, the kind of volatility normally seen in the market has returned. It may feel like a shock after so much smooth sailing, but it is the norm – and while the Dow’s recent daily losses are numerically unprecedented, they are also proportionate with the level of the index.

A few things are worth remembering at this juncture. One, Wall Street has had more good years than bad ones, as any casual glance at its history will reveal. This year may turn out well. Two, something similar happened in the mid-1990s – a long, easygoing bull run was suddenly disrupted by major volatility. That bull market kept going, though – it lasted four more years, and the S&P 500 doubled along the way. Three, this market needed to cool off; in the minds of many analysts, valuations had become too expensive. Four, the economy is in excellent shape. Five, earnings are living up to expectations. Last week, Thomson Reuters noted that 78% of the S&P firms that had reported this earnings season had topped profit forecasts.1,3

Wall Street may be turbulent, but you can stay calm. You could even look at this as a buying opportunity. Assuming this is a correction and nothing more, the market may regain its footing more quickly than we think. Typically, the average correction lasts less than 90 days. Consider any moves carefully – and talk with a financial professional if you have concerns or anxieties about this volatile episode for the markets.5

Citations.
1 – cnbc.com/2018/02/08/us-stock-futures-dow-data-earnings-fed-speeches-market-sell-off-and-politics-on-the-agenda.html [2/8/18]
2 – markets.wsj.com/us [2/8/18]
3 – money.cnn.com/2018/01/22/investing/stock-market-today-extreme-calm-pullback/index.html [1/22/18]
4 – marketwatch.com/story/panicked-about-a-stock-market-crash-what-you-need-to-remember-can-fit-on-a-single-notecard-2018-02-08 [2/8/18]
5 – cnbc.com/2018/02/07/the-quicker-the-sell-off-the-faster-we-recover-says-market-watcher.html [2/7/18]

When Will the Business Cycle Peak?

Fear Must Not Inhibit a Financial Strategy

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Estate Planning Blunders

Simple, Common mistakes you want to make sure not to do.

On today’s show, we are going to spend the bulk of it talking about something that is very important. Insuring you know where your financial assets are going after you are no longer here. I know we have talked about it in the past, but today, we are going to dive into estate planning blunders and how you can avoid making the simple and common mistakes that people make when it comes to their money.

We are also excited to introduce an new segment “Money In The News”.  Getting you everything financially newsworthy to be armed at the water cooler.

Think Total Return

 

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Think Total Return

Try another approach – the approach used by institutional investors.

Never touch your principal in retirement? Think again.

By Money On Tap

More than a century ago, an American financial archetype emerged – the household that lived on the interest earned by its investments, never touching its principal.

Times have changed. While the Vanderbilts, Carnegies, and Rockefellers could do that back in the Gilded Age, you will likely face a tough challenge trying to do the same in retirement. The reason? Low interest rates.

The federal funds rate has not topped 3% since the winter of 2008. In fact, the nation’s benchmark interest rate has been under 2% since October 2008. In today’s interest rate environment, you will need a substantial investment portfolio to live solely on income and dividends in retirement. In some parts of the country, a million-dollar portfolio might not generate enough income and dividends to help you maintain your lifestyle.1

Try another approach – the approach used by institutional investors. Wall Street money management firms and university endowment funds frequently rely on the total return investment strategy. In a retirement income context, this means that you strategically sell some assets to complement the dividends and interest income you receive.

Portfolio rebalancing is central to the total return strategy. The recurring ups and downs of the financial markets gradually unbalance a portfolio over time. A long bull market, for example, will usually leave a portfolio with a larger stock allocation than initially desired. To get back to the portfolio’s target allocations, you need to sell shares of stock (or, stocks aside, amounts of other kinds of investments). The proceeds of sale equal retirement income for you.

Before you pursue this strategy, you need to determine two things. One, do you have a portfolio built so that you can potentially derive income from diverse asset classes? Two, assuming you have that diversification, how much dividend and interest income is your portfolio likely to generate this year? The amount may fall short of the income you need. Rebalancing might be able to help you make up the slack.

Besides being fundamental to a total return approach for retirement income, rebalancing may also help you accomplish other objectives.

Rebalancing keeps your portfolio diversified, so that your retirement income does not depend too heavily on the performance of one asset class. It can stave off a potentially risky response to the ongoing desire for yield (some investors, frustrated by poor returns, direct money into high-risk investments they barely understand). It may also allow you to sustain your lifestyle and spending; relying only on dividends and interest may cause you to pare your spending back and notably reduce your quality of life.

Think total return. Explore the total return approach to retirement income planning, today.

Citations.
1 – thebalance.com/fed-funds-rate-history-highs-lows-3306135 [12/13/17]

Annuities …. Love’em … Hate’em

Should We Reconsider What “Retirement” Means?

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Alternative Investments…Means What??? Exactly!

We Are Surrounded By Alternatives—Discover Why This Asset Class Gets So Much Attention And What It Means For You!

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Time To Pay The Piper

Qualified Accounts Have Their Advantages Up Front But May Cost You Later

Qualified Accounts Have Their Advantages Up Front But May Cost You Later

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What Do You Have in Reserve for 2018?

Build your emergency fund this year. It’s easier than you think.

Build your emergency fund this year.

by Money On Tap

How much does the average American household have in the bank? Estimates vary, but the short answer to this question is “not enough.”

 

Last year, a GoBankingRates poll discovered that 57% of U.S. households had less than $1,000 in deposit accounts (although, 25% reported having at least $10,000). A 2017 analysis from Moebs Services, a research firm consulting banks and credit unions, noted that the average U.S. checking account contained around $3,600.1,2

    

Eyeing these numbers, you get the sense that – in an emergency – most households have less than a month before their liquid savings run out. Is this true for your household? Hopefully, your cash reserve is much larger; if that is not the case, now is as good a time as any to bolster your emergency fund.

 

Building up an emergency fund may be easier than you think. As financial upsets are thankfully infrequent, you have long periods of normalcy in which you can amass cash. Can you save $50 a month toward that goal? You will have $600 after 12 months if you do or $1,200 in 12 months if your spouse saves along with you. That may not seem like much, but even that little pool of cash could suffice.

 

Keep in mind, the whole goal of an emergency fund is to deal with sudden – and presumably acute – expenses. In the grand scheme of things, these emergency costs will likely be trivial compared to the total expense of your retirement. If you end up directing more of your money to your retirement fund than your emergency fund per month, who can blame you? Your retirement fund is presumably invested in equities and has the chance to grow and compound over time. It addresses what is arguably your top financial need – the need to provide yourself with financial stability after you end your career.

 

Some households need larger emergency funds than others. A high-earning, child-free couple living without much debt in a relatively inexpensive metro area might need one to absorb only 3-4 months of expenses. A family reliant on one paycheck might need one that is much larger, as severe financial trouble could surface if the breadwinner loses a job or falls ill.

  

Emergency funds can also help in other kinds of money crises. While an emergency is an unexpected event calling for an immediate response, you may be able to sense other financial disruptions and inconveniences coming. Maybe that garage door keeps malfunctioning or your eight-year-old computer has trouble booting up. These are signals that you will need to write a check or pull out that debit card soon.

 

Living without an emergency fund can invite worry. It is an anxiety too many households have had to accept. Plan to save a little each month (or more than a little, if you can manage), so that you may create a bit more financial “breathing room” in your life.

Citations.

1 – cnbc.com/2017/09/13/how-much-americans-at-have-in-their-savings-accounts.html [9/13/17]

2 – tinyurl.com/yacqwq4p [7/13/17]

   

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You’re Going to Retire Where?

Location, Location, Location! Decisions On One Or More Retirement Locations Is On Tap Today.

Location, Location, Location! Decisions On One Or More Retirement Locations Is On Tap Today.

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How the Tax Reforms Will Take Effect

Some of the impact of the Tax Cuts & Jobs Act will be felt later than January 1.

Some of the impact of the Tax Cuts & Jobs Act will be felt later than January 1.

 by Money On Tap

President Donald Trump signed the Tax Cuts & Jobs Act into law on December 22, and on January 1, some key details of the Internal Revenue Code will abruptly change.1

  

There will be night-and-day change, both figuratively and literally. On January 1, the federal estate tax exemption will double; the standard federal income tax deduction will nearly double. The top corporate income tax rate will fall from 35% to 21%. Most business owners who make pass-through income will be able to deduct the first 20% of that income tax-free.2,3

 

Workers may not see changes to their paychecks until February. This is because the Internal Revenue Service needs to release new withholding tables. Those tables are slated to appear in January.2

 

Two provisions of the TCJA may also apply retroactively for some taxpayers. A larger federal tax deduction for out-of-pocket medical expenses is allowed not just for 2018, but also for 2017. Taxpayers who itemize may write off qualifying medical expenses exceeding 7.5% of income in 2017, instead of 10% of income. Businesses that bought new capital equipment after September 27, 2017 will be permitted to fully and immediately expense those purchases for the 2017 tax year.2

 

Two other changes will not happen until January 1, 2019. On that day, the individual health insurance mandate is scheduled to be repealed; no taxpayer will face a penalty for not having health coverage. Another delayed change pertains to divorcing couples. Taxpayers who divorce in 2019 and succeeding years will not able to deduct alimony payments.2

 

Many of the changes authorized by the passage of the TCJA could expire after 2025. Congress may or may not renew them at the end of that year. The reduction of the corporate tax rate to 21% is a notable exception – that change is permanent.2,3 

   

This is a good time to plan your 2018 tax strategy. Talk to your CPA or tax preparer soon, to see how you might take advantage of the adjustments to federal tax law.

Citations.

1 – cnn.com/2017/12/22/politics/trump-sign-tax-bill-mar-a-lago/index.html [12/22/17]

2 – nytimes.com/interactive/2017/12/21/us/politics/will-tax-plan-affect-my-2017-taxes.html [12/21/17]

3 – cbsnews.com/news/gop-tax-bill-how-the-new-tax-plan-will-affect-you/ [12/17/17]

Featured

Shedding New Light On Retirement Planning

Foundational Elements… Multiple Streams Of Income… Sounds Like A Plan

Foundational Elements… Multiple Streams Of Income… Sounds Like A Plan

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How Do We Communicate…. About Money?

Communicating About Money Can Be Difficult When It Comes To Your Family….

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Fear Must Not Inhibit a Financial Strategy

Fear. Too often, it persuades investors to make questionable moves.

Too often, it persuades investors to make questionable moves.

 

By Money On Tap

 

Fear affects investors in two distinct ways. Every so often, a bulletin, headline, or sustained economic or market trend will scare them and make them question their investing approach. If they overreact to it, they may sell low now and buy high later – or in the worst-case scenario, they derail their whole investing and retirement planning strategy.

  

Besides the fear of potential market shocks, there is also another fear worth noting – the fear of being too involved in the market. People with this worry are often superb savers, but reluctant investors. They amass large bank accounts, yet their aversion to investing in equities may hurt them in the long run.

 

Impulsive investment decisions tend to carry a cost. People who jump in and out of investment sectors or classes tend to pay a price for it. A statistic hints at how much: across the 20 years ending on December 31, 2015, the S&P 500 returned an average of 8.91% per year, but the average equity investor’s portfolio returned just 4.67% annually. Fixed-income investors also failed to beat a key benchmark: in this same period, the Barclays Aggregate Bond Index advanced an average of 5.34% a year, but the average fixed-income investor realized an annual return of only 0.51%.1

 

This data was compiled by DALBAR, a highly respected investment research firm, which has studied the behavior of individual investors since the mid-1980s. The numbers partly reflect the behavior of the typical individual investor who loses patience and tries to time the market. A hypothetical “average” investor who merely bought and held, with an equity or fixed-income portfolio merely copying the components of the above benchmarks, would have been better off across those 20 years. In monetary terms, the sustained difference in performance could have meant a difference of hundreds of thousands of dollars in earnings for an investor across a lifetime, given compounding.1

 

Other people are held back by their anxiety about investing. They become great savers, steadily building six-figure cash positions in enormous savings or checking accounts – but they never sufficiently invest their money.

 

That confusion comes with a severe potential downside. Just how much interest are their deposit accounts earning? Right now, almost nothing. If they invested more of the money they were saving into equities – or some kind of investment vehicle with the potential to outrun inflation – those invested dollars could grow and compound over time to a degree that idle cash does not.

 

A large emergency fund is a great thing to have, but it can be argued that a tax-advantaged retirement fund of invested dollars is a better thing to have. After all, who retires on cash savings alone? Tomorrow’s retirees will live mainly on the earnings generated from the investment of the dollars they have saved over the decades. Seen one way, a focus on cash is financially nearsighted; it ignores the possibility that even greater abundance may be realized through its sustained investment.

 

Fear dissuades some people from sticking with a long-term financial strategy and discourages other people from developing one. Patience and knowledge can help investors contend with the fears that may risk hurting their retirement saving prospects.

Citations.

1 – zacksim.com/heres-investors-underperform-market/ [5/22/17]

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Face your Fears!

Financial Fears Are Common–You Don’t Have To Be Controlled By Them!

Financial Fears Are Common–You Don’t Have To Be Controlled By Them!

 

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One Of The Biggest Collisions In Our Lifetime…

Collisions Are Inevitable…Becoming Profitable From Changing Demographics Is What’s Behind The Wheel Today…

Collisions Are Inevitable…Becoming Profitable From Changing Demographics Is What’s Behind The Wheel Today…

 

 

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Should We Reconsider What “Retirement” Means?

Our definition of “retirement” is changing. Retirement is now a time of activity and opportunity.

The notion that we separate from work in our sixties may have to go.

Money On Tap

An executive transitions into a consulting role at age 62 and stops working altogether at 65; then, he becomes a buyer for a church network at 69. A corporate IT professional decides to conclude her career at age 58; she serves as a city council member in her sixties, then opens an art studio at 70.

 

Are these people retired? Not by the old definition of the word. Our definition of “retirement” is changing. Retirement is now a time of activity and opportunity.

   

Generations ago, Americans never retired – at least not voluntarily. American life was either agrarian or industrialized, and people toiled until they died or physically broke down. Their “social security” was their children. Society had a low opinion of able-bodied adults who preferred leisure to work.

 

German Chancellor Otto von Bismarck often gets credit for “inventing” the idea of retirement. In the late 1800s, the German government set up the first pension plan for those 65 and older. (Life expectancy was around 45 at the time.) When our Social Security program began in 1935, it defined 65 as the U.S. retirement age; back then, the average American lived about 62 years. Social Security was perceived as a reward given to seniors during the final years of their lives, a financial compliment for their hard work.1 

 

After World War II, the concept of retirement changed. The model American worker was now the “organization man” destined to spend decades at one large company, taken care of by his (or her) employer in a way many people would welcome today. Americans began to associate retirement with pleasure and leisure.

 

By the 1970s, the definition of retirement had become rigid. You retired in your early sixties, because your best years were behind you and it was time to go. You died at about 72 or 75 (depending on your gender). In between, you relaxed. You lived comfortably on an employee pension and Social Security checks, and the risk of outliving your money was low. If you lived to 81 or 82, that was a good run. Turning 90 was remarkable.

 

Today, baby boomers cannot settle for these kinds of retirement assumptions. This is partly due to economic uncertainty and partly due to ambition. Retirement planning today is all about self-reliance, and to die at 65 today is to die young with the potential of one’s “second act” unfulfilled.

   

One factor has altered our view of retirement more than any other. That factor is the increase in longevity. When Social Security started, retirement was seen as the quiet final years of life; by the 1960s, it was seen as an extended vacation lasting 10-15 years; and now, it is seen as a decades-long window of opportunity.

 

Working past 70 may soon become common. Some baby boomers will need to do it, but others will simply want to do it. Whether by choice or chance, some will retire briefly and work again; others will rotate between periods of leisure and work for as long as they can. Working full time or part time not only generates income, it also helps to preserve invested retirement assets, giving them more years to potentially compound. Another year on the job also means one less year of retirement to fund.

 

Perhaps we should see retirement foremost as a time of change – a time of changing what we want to do with our lives. According to the actuaries at the Social Security Administration, the average 65-year-old has about 20 years to pursue his or her interests. Planning for change may be the most responsive move we can make for the future.2

Citations.

1 – dailynews.com/2017/03/24/successful-aging-im-65-and-ok-with-it/ [3/24/17]

2 – ssa.gov/planners/lifeexpectancy.html [11/21/17]

Featured

Pension Problems…Have You Got One??

Pensions are a huge problem that no one wants to address. Guess what…we do!

If You Have A Pension, It’s Time To Dig A Little Deeper!

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When Will the Business Cycle Peak?

As the recovery lengthens further, this is a natural question to ask.

This decade has brought a long economic rebound to many parts of America. As 2017 ebbs into 2018, some of the statistics regarding this comeback are truly impressive:

 

*Payrolls have grown, month after month, for more than seven years.

*The jobless rate is lower than it has been for more than a decade.

*Business activity in the service sector has not contracted since the summer of 2009.

*The economy just grew 3% or more in back-to-back quarters, a feat unseen since 2014.1,2

 

In the big picture, the American economy is booming. These statistics, and others, are so noteworthy that analysts are asking: when will the business cycle peak? Has it already peaked? Or are we experiencing a remarkably great exception to the norm?

 

Any investor must recognize two indisputable facts. One, expansions eventually give way to recessions. Two, bull markets are punctuated by bear markets. The question is when we will see the next recession, the next bear market, or both.

 

All business cycles have four phases. The first phase – expansion – is often the longest. It is characterized by two phenomena: a bull market and annualized GDP of 2% or greater. This expansion culminates at a peak, which is phase two. The peak is characterized by irrational exuberance on Wall Street, economic growth of 3% or more, a distinct acceleration of consumer prices, and the emergence of asset bubbles.3

 

Then – perhaps, imperceptibly – supply begins to exceed demand. Fundamental indicators begin to weaken; yet, the economy still grows – just not at the pace it previously did. Then, the growth diminishes altogether, and the business cycle enters phase three – contraction. GDP goes negative for two or more successive quarters, which defines a recession. Corporate earnings take a major hit, depressing investors. Equities enter a bear market. Finally, things come to a trough – a bottom. On Wall Street, institutional investors reach a point of capitulation – a moment when they decide there is more potential upside than downside to stocks. Investors and consumers start to become less pessimistic. Suddenly, supply has to keep up with demand again. Things brighten, and a new business cycle begins.3

 

How will we know precisely when the business cycle has peaked? Without seeing the future, we cannot know. We can make an educated guess based on fundamental economic indicators and earnings, but we will really only know looking back.

 

How can we prepare for the later phases of this current business cycle? Some healthy skepticism and some diversification may help. Investors who tend to get burned the most in an economic downturn (or bear market) are those who have fallen in love with one sector or one asset class. Their portfolios have become unbalanced, perhaps just because of the gains seen in the bull market.

 

Some investors opt for active portfolio management in recognition of business cycles, and their heavy influence on stock market cycles. Others choose to buy and hold, feeling that it is all too easy to mistime cycles while getting in and out of this or that investment class.

 

We have enjoyed a great bull run, and a new wave of prosperity has pulled many metro areas out of economic doldrums. At some point, times will get tougher. Whether you decide the appropriate response is to ride a downturn out or react quickly to it, a discussion with your trusted financial professional is a wise move.

 

     

Citations.

1 – inc.com/associated-press/jobs-report-october-2017.html [11/2/17]

2 – instituteforsupplymanagement.org/ISMReport/NonMfgROB.cfm [11/3/17]

3 – thebalance.com/where-are-we-in-the-current-business-cycle-3305593 [7/18/17]

 

Featured

How To Deal With The Ups And Downs Of Investing…

Investing can have a lot of ups and downs. Here is how you can succeed.

Does It Ever Feel Like You Are On An Investment Roller Coaster!? Here’s How To Cope!

 

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More From our Q&A Lab!

Some Questions Take More Time And Let’s Face It … Your Worth It! Join Us While We Dive Into Your Financial Questions On MOT!

Some Questions Take More Time And Let’s Face It … Your Worth It! Join Us While We Dive Into Your Financial Questions On MOT!

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Year-End Charitable Gifting

What should you keep in mind as you donate?

What should you keep in mind as you donate?

Are you making charitable donations this holiday season? If so, you should know about some of the financial “fine print” involved, as the right moves could potentially bring more of a benefit to the charity and to you.

To deduct charitable donations, you must itemize them on I.R.S. Schedule A. So, you need to document each donation you make. Ideally, the charity uses a form it has on hand to provide you with proof of your contribution. If the charity does not have such a form handy (and some charities do not), then a receipt, a credit or debit card statement, a bank statement, or a cancelled check will have to suffice. The I.R.S. needs to know three things: the name of the charity, the gifted amount, and the date of your gift.1

From a tax planning standpoint, itemized deductions are only worthwhile when they exceed the standard income tax deduction. The 2017 standard deduction for a single filer is $6,350. If you file as a head of household, your standard deduction is $9,350. Joint filers and surviving spouses have a 2017 standard deduction of $12,700. (All these amounts rise in 2018.)2

Make sure your gift goes to a qualified charity with 501(c)(3) non-profit status. Also, visit CharityNavigator.org, CharityWatch.org, or GiveWell.org to evaluate a charity and learn how effectively it utilizes donations. If you are considering a large donation, ask the charity involved how it will use your gift.

If you donated money this year to a crowdsourcing campaign organized by a 501(c)(3) charity, the donation should be tax deductible. If you donated to a crowdsourcing campaign that was created by an individual or a group lacking 501(c)(3) status, the donation is not deductible.3

How can you make your gifts have more impact? You may find a way to do this immediately, thanks to your employer. Some companies match charitable contributions made by their employees. This opportunity is too often overlooked.

Thoughtful estate planning may also help your gifts go further. A charitable remainder trust or a contract between you and a charity could allow you to give away an asset to a 501(c)(3) organization while retaining a lifetime interest. You could also support a charity with a gift of life insurance. Or, you could simply leave cash or appreciated property to a non-profit organization as a final contribution in your will.1

Many charities welcome non-cash donations. In fact, donating an appreciated asset can be a tax-savvy move.

You may wish to explore a gift of highly appreciated securities. If you are in a higher income tax bracket, selling securities you have owned for more than a year can lead to capital gains taxes. Instead, you or a financial professional can write a letter of instruction to a bank or brokerage authorizing a transfer of shares to a charity. This transfer can accomplish three things: you can avoid paying the capital gains tax you would normally pay upon selling the shares, you can take a current-year tax deduction for their full fair market value, and the charity gets the full value of the shares, not their after-tax net value.4

You could make a charitable IRA gift. If you are wealthy and view the annual Required Minimum Distribution (RMD) from your traditional IRA as a bother, think about a qualified charitable distribution (QCD) from your IRA. Traditional IRA owners age 70½ and older can arrange direct transfers of up to $100,000 from an IRA to a qualified charity. (Married couples have a yearly limit of $200,000.) The gift can satisfy some or all of your RMD; the amount gifted is excluded from your adjusted gross income for the year. (You can also make a qualified charity a sole beneficiary of an IRA, should you wish.)4,5

Do you have an unneeded life insurance policy? If you make an irrevocable gift of that policy to a qualified charity, you can get a current-year income tax deduction. If you keep paying the policy premiums, each payment becomes a deductible charitable donation. (Deduction limits can apply.) If you pay premiums for at least three years after the gift, that could reduce the size of your taxable estate. The death benefit will be out of your taxable estate in any case.6

Should you donate a vehicle to charity? This can be worthwhile, but you probably will not get fair market value for the donation; if that bothers you, you could always try to sell the vehicle at fair market value yourself and gift the cash. As organizations that coordinate these gifts are notorious for taking big cuts, you may want to think twice about this idea.7

You may also want to make cash gifts to individuals before the end of the year. In 2017, any taxpayer may gift up to $14,000 in cash to as many individuals as desired. If you have two grandkids, you can give them each up to $14,000 this year. (You can also make individual gifts through 529 education savings plans.) At this moment, every taxpayer can gift up to $5.49 million during his or her lifetime without triggering the federal estate and gift tax exemption.8

Be sure to give wisely, with input from a tax or financial professional, as 2017 ends

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Citations.

1 – tinyurl.com/y8dkleed [8/23/17]

2 – forbes.com/sites/kellyphillipserb/2017/10/19/irs-announces-2018-tax-brackets-standard-deduction-amounts-and-more/ [10/19/17]

3 – legalzoom.com/articles/cash-and-kickstarter-the-tax-implications-of-crowd-funding [3/17]

4 – irs.gov/retirement-plans/retirement-plans-faqs-regarding-iras-distributions-withdrawals [8/17/17]

5 – pe.com/2017/11/04/its-not-that-hard-to-give-cash-or-stock-to-charity/ [11/4/17]

6 – kiplinger.com/article/taxes/T021-C032-S014-gifting-a-life-insurance-policy-to-a-charity.html [11/17]

7 – foxbusiness.com/features/2017/10/18/edmunds-what-to-know-about-donating-your-car-to-charity.html [10/18/17]

8 – law.com/thelegalintelligencer/sites/thelegalintelligencer/2017/11/02/with-2018-fast-approaching-its-time-for-some-year-end-tax-planning-tips [11/2/17]

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You Have Questions? Well, We have Answers!!

From Ponzi schemes to whether to contribute to a Roth or Traditional IRA– we tackle some of your toughest questions!

From Ponzi schemes to whether to contribute to a Roth or Traditional IRA– we tackle some of your toughest questions!

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Your 2018 Financial To-Do List

Things you can do for your future as the year unfolds.

Things you can do for your future as the year unfolds.

Seth Krussman IAR
Brayshaw Financial Group LLC

What financial, business, or life priorities do you need to address for 2018? Now is a good time to think about the investing, saving, or budgeting methods you could employ toward specific objectives, from building your retirement fund to lowering your taxes. You have plenty of options. Here are a few that might prove convenient:

Can you contribute more to your retirement plans this year? In 2018, the contribution limit for a Roth or traditional IRA remains at $5,500 ($6,500 for those making “catch-up” contributions). Your modified adjusted gross income (MAGI) may affect how much you can put into a Roth IRA: singles and heads of household with MAGI above $135,000 and joint filers with MAGI above $199,000 cannot make 2018 Roth contributions.1

For tax year 2018, you can contribute up to $18,500 to any kind of 401(k), 403(b), or 457 plan, with a $6,000 catch-up contribution allowed if you are age 50 or older. If you are self-employed, you may want to look into whether you can establish and fund a Solo 401(k) before the end of 2018; as employer contributions may also be made to Solo 401(k)s, you may direct up to $55,000 into one of those plans.1,2

Your retirement plan contribution could help your tax picture. If you won’t turn 70½ this year and you participate in a traditional qualified retirement plan or have a traditional IRA, you can cut your 2018 taxable income through a contribution. Should you be in the 35% federal tax bracket, you can save $1,925 in taxes as a byproduct of a $5,500 regular IRA contribution.3

What are the income limits on deducting traditional IRA contributions? If you participate in a workplace retirement plan, the 2018 MAGI phase-out ranges are $63,000-$73,000 for singles and heads of households, $101,000-$121,000 for joint filers when the spouse making IRA contributions is covered by a workplace retirement plan, and $189,000-$199,000 for an IRA contributor not covered by a workplace retirement plan, but married to someone who is.2

Roth IRAs and Roth 401(k)s, 403(b)s, and 457 plans are funded with after-tax dollars, so you may not take an immediate federal tax deduction for your contributions to these plans. The upside is that if you follow I.R.S. rules, the account assets may eventually be withdrawn tax free.4

Your tax year 2018 contribution to a Roth or traditional IRA may be made as late as the 2019 federal tax deadline – and, for that matter, you can make a 2017 IRA contribution as late as April 17, 2018, which is the deadline for filing your 2017 federal return. There is no merit in waiting until April of the successive year, however, since delaying a contribution only delays tax-advantaged compounding of those dollars.4

Should you go Roth in 2018? You might be considering that if you only have a traditional IRA. This is no snap decision; the tax impact of the conversion must be weighed versus the potential future benefits. If you are a high earner, you should know that income phase-out limits may affect your chance to make Roth IRA contributions. For 2018, phase-outs kick in at $189,000 for joint filers and $120,000 for single filers and heads of household. Should your income prevent you from contributing to a Roth IRA at all, you still have the chance to contribute to a traditional IRA in 2018 and then go Roth.1

Incidentally, a footnote: distributions from Roth IRAs, traditional IRAs, and qualified retirement plans, such as 401(k)s, are not subject to the 3.8% Medicare surtax affecting single/joint filers with AGIs over $200,000/$250,000. If your AGI surpasses these MAGI thresholds, then dividends, royalties, the taxable part of non-qualified annuity income, taxable interest, passive income (such as partnership and rental income), and net capital gains from the sale of real estate and investments are subject to that surtax.5

Consult a tax or financial professional before you make any IRA moves to see how those changes may affect your overall financial picture. If you have a large traditional IRA, the projected tax resulting from a Roth conversion may make you think twice.

What else should you consider in 2018? There are other things you may want to do or review.

Make a charitable gift. You can claim the deduction on your 2018 return, provided you itemize your deductions with Schedule A. The paper trail is important here.6

If you give cash, you need to document it. Even small contributions need to be demonstrated by a bank record or a written communication from the charity with the date and amount. Incidentally, the I.R.S. does not equate a pledge with a donation. Contributions to individuals are never tax deductible.6

What if you gift appreciated securities? If you have owned them for more than a year, you will be in line to take a deduction for 100% of their fair market value, and avoid capital gains tax that would have resulted from simply selling the investment and donating the proceeds. The non-profit organization gets the full amount of the gift, and you can claim a deduction of up to 30% of your adjusted gross income.7

Does the value of your gift exceed $250? It may, and if you gift that amount or larger to a qualified charitable organization, the I.R.S. says you need to keep “a contemporaneous written acknowledgement” from the charity “indicating the amount of cash and a description of any property contributed.” You must also file Form 8283 when your total deduction for non-cash contributions or property exceeds $500 in a year.6

If you aren’t sure if an organization is eligible to receive charitable gifts, check it out at irs.gov/Charities-&-Non-Profits/Exempt-Organizations-Select-Check.

See if you can take a home office deduction. If your income is high and you find yourself in one of the upper tax brackets, look into this. You may be able to legitimately write off expenses linked to the portion of your home exclusively used to conduct your business. (The percentage of costs you may deduct depends on the percentage of your residence you devote to your business activities.) If you qualify for this tax break, part of your rent, insurance, utilities, and repairs may be deductible.8

Open an HSA. If you are enrolled in a high-deductible health plan, you may set up and fund a Health Savings Account in 2018. You can make fully tax-deductible HSA contributions of up to $3,450 (singles) or $6,900 (families); catch-up contributions of up to $1,000 are permitted for those 55 or older. HSA assets grow tax deferred, and withdrawals from these accounts are tax free if used to pay for qualified health care expenses.1

Practice tax-loss harvesting. By selling underperforming stocks in your portfolio, you could record at least $3,000 in capital losses. In fact, you may use this tactic to offset all of your total capital gains for a given tax year. Losses that exceed the $3,000 yearly limit may be rolled over into 2019 (and future tax years) to offset ordinary income or capital gains again.3

Pay attention to asset location. Tax-efficient asset location is an ignored fundamental of investing. Broadly speaking, your least tax-efficient securities should go in pre-tax accounts, and your most tax-efficient securities should be held in taxable accounts.

Review your withholding status. Should it be adjusted due to any of the following factors?

* You tend to pay a great deal of income tax each year.
* You tend to get a big federal tax refund each year.
* You recently married or divorced.
* A family member recently passed away.
* You have a new job, and you are earning much more than you previously did.
* You started a business venture or became self-employed.

Are you marrying in 2018? If so, why not review the beneficiaries of your workplace retirement plan account, your IRA, and other assets? In light of your marriage, you may want to make changes to the relevant beneficiary forms. The same goes for your insurance coverage. If you will have a new last name in 2018, you will need a new Social Security card. Additionally, the two of you, no doubt, have individual retirement saving and investment strategies. Will they need to be revised or adjusted once you are married?

Are you coming home from active duty? If so, go ahead and check the status of your credit and the state of any tax and legal proceedings that might have been preempted by your orders. Make sure any employee health insurance is still there, and revoke any power of attorney you may have granted to another person.

Consider the tax impact of any upcoming transactions. Are you planning to sell (or buy) real estate next year? How about a business? Do you think you might exercise a stock option in the coming months? Might any large commissions or bonuses come your way in 2018? Do you anticipate selling an investment that is held outside of a tax-deferred account? Any of these actions might significantly impact your 2018 taxes.

If you are retired and older than 70½, remember your year-end RMD. Retirees over age 70½ must begin taking Required Minimum Distributions from traditional IRAs and 401(k), 403(b), and profit-sharing plans by December 31 of each year. The I.R.S. penalty for failing to take an RMD equals 50% of the RMD amount that is not withdrawn.9

If you turned 70½ in 2017, you can postpone your initial RMD from an account until April 1, 2018. The downside of this is that you will have to take two RMDs in 2018, with both RMDs being taxable events – you will have to make your 2017 tax year RMD by April 1, 2018 and your 2018 tax year RMD by December 31, 2018.9

Plan your RMD wisely. If you do so, you may end up limiting or avoiding possible taxes on your Social Security income. Some Social Security recipients don’t know about the “provisional income” rule – if your adjusted gross income, plus any non-taxable interest income you earn, plus 50% of your Social Security benefits surpasses a certain level, then some Social Security benefits become taxable. Social Security benefits start to be taxed at provisional income levels of $32,000 for joint filers and $25,000 for single filers.10

Lastly, should you make 13 mortgage payments in 2018? If your house is underwater, this makes no sense, and you could argue that those dollars might be better off invested or put in your emergency fund. Those factors aside, however, there may be some merit to making a January 2019 mortgage payment in December 2018. If you have a fixed-rate loan, a lump-sum payment can reduce the principal and the total interest paid on it by that much more.

Talk with a qualified financial or tax professional today. Vow to focus on being healthy and wealthy in 2018.

Citations.
1 – cbsnews.com/news/I.R.S.-allows-higher-retirement-savings-account-limits-in-2018/ [10/24/17]
2 – forbes.com/sites/ashleaebeling/2017/10/19/I.R.S.-announces-2018-retirement-plan-contribution-limits-for-401ks-and-more/ [10/19/17]
3 – turbotax.intuit.com/tax-tips/tax-planning-and-checklists/4-last-minute-ways-to-reduce-your-taxes/L3eJ81kRC [11/9/17]
4 – irs.gov/Retirement-Plans/Traditional-and-Roth-IRAs [10/25/17]
5 – bbt.com/wealth/retirement-and-planning/retirement/medicare-surtaxes.page [11/9/17]
6 – irs.gov/taxtopics/tc506 [9/21/17]
7 – tinyurl.com/yc6ecpq8 [10/12/17]
8 – irs.gov/businesses/small-businesses-self-employed/home-office-deduction [10/26/17]
9 – fool.com/retirement/2017/04/29/whats-my-required-minimum-distribution-for-2017.aspx [4/29/17]
10 – smartasset.com/retirement/is-social-security-income-taxable [7/19/17]

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