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Blog Page 2 of 4 - True North Financial Planning

27
Apr

Test Your Knowledge of Financial Basics

By Thomas Dettre Comments are Off

Congress has designated April as National Financial Literacy Month in order to raise awareness about the importance of financial literacy education in the United States. National Financial Literacy Month is the perfect time to focus on your saving, investing, and financial planning goals.  It is also a good time to test your knowledge of financial basics.  I am including a brief 10 question quiz to help you gauge your knowledge of a few basics.  The answers are at the bottom (but I know no one will cheat J).  Have fun with this and good luck!

Test Your Knowledge of Financial Basics
How well do you understand personal finance? The following brief quiz can help you gauge your knowledge of a few basics. In the answer section, you’ll find details to help you learn more.
Questions
1) How much should you set aside in liquid, low-risk savings in case of emergencies?
a. One to three months worth of expenses
b. Three to six months worth of expenses
c. Six to 12 months worth of expenses
d. It depends
2) Diversification can eliminate risk from your portfolio.
a. True
b. False
3) Which of the following is a key benefit of a 401(k) plan?
a. You can withdraw money at any time for needs such as the purchase of a new car.
b. The plan allows you to avoid paying taxes on a portion of your compensation.
c. You may be eligible for an employer match, which is essentially getting free money.
d. None of the above
4) Some, but not all, of the money in a bank or credit union account is protected.
a. True
b. False
5) Which of the following is typically the best way to pursue your long-term goals?
a. Investing as conservatively as possible to minimize the chance of loss
b. Investing equal amounts in stocks, bonds, and cash investments
c. Investing 100% of your money in stocks
d. Not enough information to decide
6) In debt speak, what does APR stand for?
a. Actual percentage rate
b. Annual personal rate
c. Annual percentage rate
d. Actual personal return
7) Mutual funds are the safest types of investments.
a. True
b. False
8) I have plenty of time to save for retirement. I don’t have to concern myself with that right now.
a. True
b. False
9) What is/are the benefit(s) of a Roth IRA?
a. A Roth IRA can provide tax-free income in retirement.
b. Investors can take a tax deduction for their Roth IRA contributions.
c. Investors can make tax-free withdrawals after a five-year holding period for any reason.
d. All of the above
10) What is considered a good credit score?
a. 85 or above
b. 500 or above
c. B or above
d. 700 or above

Answers
1) d. Although it’s conventional wisdom to set aside three to six months worth of living expenses in a liquid savings vehicle, such as a bank savings account or money market account, the answer really depends on your own situation. If your (and your spouse’s) job is fairly secure and you have other assets, you may need as little as three months worth of expenses in emergency savings. On the other hand, if you’re a business owner in a volatile industry, you may need as much as a year’s worth or more to carry you through uncertain times.
2) b — False. Diversification is a sound investment strategy that helps you manage risk by spreading your investment dollars among different types of securities and asset classes, but it cannot eliminate risk entirely, and it cannot guarantee a profit. You still run the risk of losing money.
3) c. Many employer-sponsored 401(k) plans offer a matching program, which is akin to receiving free money to invest. If your plan offers a match, you should try to contribute at least enough to take full advantage of it. Some matching programs impose a vesting schedule, which means you will earn the right to the matching contributions and any earnings on those dollars over a period of time.
If you selected b as your answer, you’ll note this is a bit of a trick question. Although income taxes are deferred on contributions to traditional 401(k)s, they are not eliminated entirely. You will have to pay taxes on those contributions, and any earnings on them, when you take a distribution from the plan. In addition, distributions taken prior to age 59½ may be subject to a 10% penalty tax. Some exceptions apply.
4) a — True. Deposits in federally insured banks and credit unions are insured by the Federal Deposit Insurance Corporation (FDIC) and the National Credit Union Share Insurance Fund (NCUSIF), respectively, up to $250,000 per depositor, per ownership category (e.g., single account, joint account, retirement account, trust account), per institution. Neither the FDIC nor the NCUSIF protects against losses in stocks, bonds, mutual funds, life insurance policies, annuities, or municipal securities, nor do they insure items held in safe-deposit boxes or investments in Treasury bills.
5) d. To adequately pursue your long-term goals, you might consult with a financial professional before choosing a strategy. He or she will take into consideration your goals, risk tolerance, and time horizon, among other factors, to put together a strategy that’s appropriate for your needs.
6) c. APR stands for annual percentage rate. This is the rate that credit card, mortgage, and other loan issuers use to show borrowers approximately how much they are paying each year to borrow funds, taking into account all fees and costs. The APR differs from a loan’s stated interest rate, which is typcially lower than the APR because it does not take into account fees and other costs. Borrowers can compare the APRs on different loans to help make smart financial decisions. However, when it comes to mortgages, borrowers should use caution when comparing the APRs of fixed-rate loans and adjustable-rate loans, because APRs do not represent the maximum interest rate the loan may charge.
7) b — False. Mutual funds combine the money of many different investors in a portfolio of securities that’s invested in pursuit of a stated objective. Because of this “diversification,” mutual funds are typically a good way to help manage risk. However, the level of risk inherent in any mutual fund depends on the types of securities it holds. You should always choose a mutual fund carefully to make sure its objective aligns with your own investment goals. Read the fund’s prospectus carefully, as it contains important information about risks, fees, and expenses, as well as details about specific holdings.
8) b — False. Although retirement may be decades away, investing for retirement now is a smart move. That’s because even small amounts–say just $50 per month–can add up through the power of compounding, which is what happens when your returns eventually earn returns themselves. This means your money goes to work for you!
9) a. The primary benefit of a Roth IRA is that it provides tax-free income in retirement. Contributions are subject to income limits and are never tax deductible. Withdrawals may be made after a holding period of five years, provided they are “qualified.” A qualified withdrawal is one made after the account holder dies, becomes disabled, or reaches age 59½, or one in which the account holder withdraws up to $10,000 (lifetime limit) for a first-time home purchase.
10) d. Because different organizations calculate credit scores based on varying factors, there is no single agreed-upon definition of what constitutes a “good” score. Generally, though, a score of 700 or above would likely reflect favorably on someone applying for credit.

IMPORTANT DISCLOSURES
Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, legal, or retirement advice or recommendations. The information presented here is not specific to any individual’s personal circumstances.
To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.
These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.
Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2019.
To opt-out of future emails, please click here.      
27
Mar

The Benefits of Tax-Advantaged Savings Vehicles

By Thomas Dettre Comments are Off

Happy spring to everyone!  It is nice to finally have some more frequent sunshine and somewhat warmer temperatures.

This month’s edition of Financial Planning Tips focuses on the benefits of tax advantaged savings vehicles.  Understanding the tax considerations of different investment vehicles and applying to your situation can make a huge difference in your long-term savings and investment results.

Read on for key information on different types of tax advantaged investment vehicles.  It is important to understand which vehicle(s) are the most appropriate for you.

Tax deferred is not the same as tax free. “Tax deferred” means that the payment of taxes is delayed, while “tax free” means that no income taxes are due at all. For example, with a Roth IRA, after-tax dollars are contributed, but qualified distributions (those satisfying a five-year holding period and made after age 59½ or after becoming disabled) are free from federal income tax.

Though tax considerations shouldn’t be your only investing concern, by putting your money in tax-advantaged savings vehicles and investments when appropriate, you’ll keep more money in your own pocket and put less in Uncle Sam’s.

*Withdrawals prior to age 59½ may be subject to a 10% federal income tax penalty unless an exception applies.

  

The Benefits of Tax-Advantaged Savings Vehicles

Taxes can take a big bite out of your total investment returns, so it’s helpful to look for tax-advantaged strategies when building a portfolio. But keep in mind that investment decisions shouldn’t be driven solely by tax considerations; other factors to consider include the potential risk, the expected rate of return, and the quality of the investment.

Tax-deferred and tax-free investments

Tax deferral is the process of delaying (but not necessarily eliminating) until a future year the payment of income taxes on income you earn in the current year. For example, the money you put into your traditional 401(k) retirement account isn’t taxed until you withdraw it, which might be 30 or 40 years down the road!

Tax deferral can be beneficial because:

·       The money you would have spent on taxes remains invested

·       You may be in a lower tax bracket when you make withdrawals from your accounts (for example, when you’re retired)

·       You can accumulate more dollars in your accounts due to compounding

Compounding means that your earnings become part of your underlying investment, and they in turn earn interest. In the early years of an investment, the benefit of compounding may not be that significant. But as the years go by, the long-term boost to your total return can be dramatic.

Taxes make a big difference

Let’s assume two people have $5,000 to invest every year for a period of 30 years. One person invests in a tax-free account like a Roth 401(k) that earns 6% per year, and the other person invests in a taxable account that also earns 6% each year. Assuming a tax rate of 24%, in 30 years the tax-free account will be worth $395,291, while the taxable account will be worth $308,155. That’s a difference of $87,136.

This hypothetical example is for illustrative purposes only, and its results are not representative of any specific investment or mix of investments. Actual results will vary. The taxable account balance assumes that earnings are taxed as ordinary income and does not reflect possible lower maximum tax rates on capital gains and dividends, as well as the tax treatment of investment losses, which would make the taxable investment return more favorable, thereby reducing the difference in performance between the accounts shown. Investment fees and expenses have not been deducted. If they had been, the results would have been lower. You should consider your personal investment horizon and income tax brackets, both current and anticipated, when making an investment decision as these may further impact the results of the comparison. This illustration assumes a fixed annual rate of return; the rate of return on your actual investment portfolio will be different, and will vary over time, according to actual market performance. This is particularly true for long-term investments. It is important to note that investments offering the potential for higher rates of return also involve a higher degree of risk to principal.

Tax-advantaged savings vehicles for retirement

One of the best ways to accumulate funds for retirement or any other investment objective is to use tax-advantaged (i.e., tax-deferred or tax-free) savings vehicles when appropriate.

·       Traditional IRAs — Anyone under age 70½ who earns income or is married to someone with earned income can contribute to an IRA. Depending upon your income and whether you’re covered by an employer-sponsored retirement plan, you may or may not be able to deduct your contributions to a traditional IRA, but your contributions always grow tax deferred. However, you’ll owe income taxes when you make a withdrawal.* You can contribute up to $6,000 (for 2018, $5,500 for 2018) to an IRA, and individuals age 50 and older can contribute an additional $1,000 (for 2018 and 2019).

·       Roth IRAs — Roth IRAs are open only to individuals with incomes below certain limits. Your contributions are made with after-tax dollars but will grow tax deferred, and qualified distributions will be tax free when you withdraw them. The amount you can contribute is the same as for traditional IRAs. Total combined contributions to Roth and traditional IRAs can’t exceed $6,000 (for 2018, $5,500 for 2018) for individuals under age 50.

·       SIMPLE IRAs and SIMPLE 401(k)s — These plans are generally associated with small businesses. As with traditional IRAs, your contributions grow tax deferred, but you’ll owe income taxes when you make a withdrawal.* You can contribute up to $13,000 (for 2019, $12,500 for 2018) to one of these plans; individuals age 50 and older can contribute an additional $3,000 (for 2018 and 2019). (SIMPLE 401(k) plans can also allow Roth contributions.)

·       Employer-sponsored plans (401(k)s, 403(b)s, 457 plans) — Contributions to these types of plans grow tax deferred, but you’ll owe income taxes when you make a withdrawal.* You can contribute up to $19,000 (for 2019, $18,500 for 2018) to one of these plans; individuals age 50 and older can contribute an additional $6,000 (for 2018 and 2019). Employers can generally allow employees to make after-tax Roth contributions, in which case qualifying distributions will be tax free.

·       Annuities — You pay money to an annuity issuer (an insurance company), and the issuer promises to pay principal and earnings back to you or your named beneficiary in the future (you’ll be subject to fees and expenses that you’ll need to understand and consider). Most annuities have surrender charges that are assessed if the contract owner surrenders the annuity. Annuities generally allow you to elect to receive an income stream for life (subject to the financial strength and claims-paying ability of the issuer). There’s no limit to how much you can invest, and your contributions grow tax deferred. However, you’ll owe income taxes on the earnings when you start receiving distributions.*

Tax-advantaged savings vehicles for college

For college, tax-advantaged savings vehicles include:

·       529 plans — College savings plans and prepaid tuition plans let you set aside money for college that will grow tax deferred and be tax free at withdrawal at the federal level if the funds are used for qualified education expenses. These plans are open to anyone regardless of income level. Contribution limits are high — typically over $300,000 — but vary by plan.

·       Coverdell education savings accounts — Coverdell accounts are open only to individuals with incomes below certain limits, but if you qualify, you can contribute up to $2,000 per year, per beneficiary. Your contributions will grow tax deferred and be tax free at withdrawal at the federal level if the funds are used for qualified education expenses.

·       Series EE bonds — The interest earned on Series EE savings bonds grows tax deferred. But if you meet income limits (and a few other requirements) at the time you redeem the bonds for college, the interest will be free from federal income tax too (it’s always exempt from state tax).

Note:  Investors should consider the investment objectives, risks, charges, and expenses associated with 529 plans. More information about specific 529 plans is available in each issuer’s official statement, which should be read carefully before investing. Also, before investing consider whether your state offers a 529 plan that provides residents with favorable state tax benefits. The availability of tax and other benefits may be conditioned on meeting certain requirements. There is also the risk that the investments may lose money or not perform well enough to cover college costs as anticipated. For withdrawals not used for qualified higher-education expenses, earnings may be subject to taxation as ordinary income and possibly a 10% federal income tax penalty.
Refer a friend To find out more click here
IMPORTANT DISCLOSURES

Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, legal, or retirement advice or recommendations. The information presented here is not specific to any individual’s personal circumstances.

To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.

These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.
Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2019.

To opt-out of future emails, please click here.
20
Jan

Investing Basics

By Thomas Dettre Comments are Off

I hope the new year is off to a good start for everyone.

This month’s edition of Financial Planning Tips focuses on investing basics.  With the recent volatility in the financial markets, many people have become fearful about their investment portfolios and what the future may hold.  Here are a few key investing considerations, and below is some additional information and guidance on two important pillars of investing: saving and investing wisely and asset allocation.

 

Key Considerations

 

  • SPEND LESS THAN YOU EARN and invest the difference!
    • Then reinvest until you achieve your goals
    • Make this a must in your life; don’t give yourself a choice
  • Find the right asset allocation for you, and stick to it!
    • Asset allocation matters much more than selection of specific investments
    • Keep it simple, and avoid investments with high fees
    • Rebalance your portfolio at least once a year
    • Resist the temptation to react emotionally to market swings.  Research shows that people who allow their investing decisions to be driven by emotion (especially fear) end up with subpar investment returns, as the temptation is to sell when the market is declining, then buy when things turnaround.  Often this results in “selling low” and “buying high”, and thus locking in losses.  Often a better strategy is to ride out market volatility, and stick to your plan!

 

See below for additional information/guidance on saving and investing and asset allocation.

 

Note that planning tips and other info. are now posted on my website, https://truenorthfinancialplanning.com/, under Resources/Blog.  Feel free check it out.

 

Best wishes to all for an abundant new year!

 

Saving and Investing Wisely

Saving builds a foundation

The first step in investing is to secure a strong financial foundation. Start with these four basic steps:

  • Create a “rainy day” reserve: Set aside enough cash to get you through an unexpected period of illness or unemployment–three to six months’ worth of living expenses is generally recommended. Because you may need to use these funds unexpectedly, you’ll generally want to put the cash in a low-risk, liquid investment.
  • Pay off your debts: It may make more sense to pay off high-interest-rate debt (for example, credit card debt) before making investments that may have a lower or more uncertain return.
  • Get insured: There is no better way to put your extra cash to work for you than by having adequate insurance. It’s your best protection against financial loss, so review your home, auto, health, disability, life, and other policies, and increase your coverage, if needed.
  • Max out any tax-deferred retirement plans, such as 401(k)s and IRAs: Putting money in these accounts defers income taxes, which means you’ll have more money to save. Take full advantage if they are available to you.

The impact of 3% yearly inflation on the purchasing power of $200,000

Why invest?

To try to fight inflation

When people say, “I’m not an investor,” it’s often because they worry about the potential for market losses. It’s true that investing involves risk as well as reward, and investing is no guarantee that you’ll beat inflation or even come out ahead. However, there’s also another type of loss to be aware of: the loss of purchasing power over time. During periods of inflation, each dollar you’ve saved will buy less and less as time goes on.

To take advantage of compound interest

Anyone who has a savings account understands the basics of compounding: The funds in your savings account earn interest, and that interest is added to your account balance. The next time interest is calculated, it’s based on the increased value of your account. In effect, you earn interest on your interest. Many people, however, don’t fully appreciate the impact that compounded earnings can have, especially over a long period of time.

Compounding interest

Let’s say you invest $5,000 a year for 30 years (see illustration). After 30 years you will have invested a total of $150,000. Yet, assuming your funds grow at exactly 6% each year, after 30 years you will have over $395,000, because of compounding.

Note:  This is a hypothetical example and is not intended to reflect the actual performance of any specific investment. Taxes and investment fees and expenses are not reflected. If they were, the results would be lower. Actual results will vary. Rates of return will vary over time, particularly for long-term investments.

Compounding has a “snowball” effect. The more money that is added to the account, the greater its benefit. Also, the more frequently interest is compounded–for example, monthly instead of annually–the more quickly your savings build. The sooner you start saving or investing, the more time and potential your investments have for growth. In effect, compounding helps you provide for your financial future by doing some of the work for you.

 

Note:  Asset allocation and diversification don’t guarantee a profit or insure against a loss. All investing involves risk, including the potential loss of principal, and there can be no guarantee that any investing strategy will be successful.   Asset Allocation

The combination of investments you choose can be as important as your specific investments. The mix of various asset classes, such as stocks, bonds, and cash alternatives, account for most of the ups and downs of a portfolio’s returns.

Deciding how much of each you should include is one of your most important tasks as an investor. That balance between potential for growth, income, and stability is called your asset allocation. It doesn’t guarantee a profit or insure against a loss, but it does help you manage the level and type of risks you face.

Balancing risk and return

Ideally, you should strive for an overall combination of investments that can help to minimize the risk you take in trying to achieve a targeted rate of return. This often means balancing more conservative investments against others that are designed to provide a higher return but that also involve more risk. For example, let’s say you want to get a 7.5% return on your money. Your financial professional tells you that in the past, stock market returns have averaged about 10% annually, and bonds roughly 5%. One way to try to achieve your 7.5% return would be by choosing a 50-50 mix of stocks and bonds. It might not work out that way, of course. This is only a hypothetical illustration, not a real portfolio, and there’s no guarantee that either stocks or bonds will perform as they have in the past. But asset allocation gives you a place to start.

Many publications feature model investment portfolios that recommend generic asset allocations based on an investor’s age. These can help jump-start your thinking about how to divide up your investments. However, because they’re based on averages and hypothetical situations, they shouldn’t be seen as definitive. Your asset allocation is–or should be–as unique as you are. Even if two people are the same age and have similar incomes, they may have very different needs and goals. You should make sure your asset allocation is tailored to your individual circumstances.

Many ways to diversify

When financial professionals refer to asset allocation, they’re usually talking about overall classes: stocks, bonds, and cash or cash alternatives. However, there are others that also can be used to complement the major asset classes once you’ve got those basics covered. They include real estate and alternative investments such as hedge funds, private equity, metals, or collectibles. Because their returns don’t necessarily correlate closely with returns from major asset classes, they can provide additional diversification and balance in a portfolio.

Even within an asset class, consider how your assets are allocated. For example, if you’re investing in stocks, you could allocate a certain amount to large-cap stocks and a different percentage to stocks of smaller companies, or allocate based on geography. Bond investments might be allocated by various maturities, with some money in bonds that mature quickly and some in longer-term bonds. Or you might favor tax-free bonds over taxable ones, depending on your tax status and the type of account in which the bonds are held.

Monitoring your portfolio

Even if you’ve chosen an asset allocation, market forces may quickly begin to tweak it. For example, if stock prices go up, you may eventually find yourself with a greater percentage of stocks in your portfolio than you want. If they go down, you might worry that you won’t be able to reach your financial goals. The same is true for bonds and other investments.

Do you have a strategy for dealing with those changes? Of course you’ll probably want to take a look at your individual investments, but you’ll also want to think about your asset allocation. Just like your initial investing strategy, your game plan for fine-tuning your portfolio periodically should reflect your investing personality.

Even if you’re happy with your asset allocation, remember that your circumstances will change over time. Those changes may affect how well your investments match your goals. At a minimum, you should periodically review the reasons for your initial choices to make sure they’re still valid. Also, some investments, such as mutual funds, may actually change over time; make sure they’re still a good fit.
Refer a friend To find out more click here
IMPORTANT DISCLOSURES

Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, legal, or retirement advice or recommendations. The information presented here is not specific to any individual’s personal circumstances.

To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.

These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.
Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2019.

 

Thomas C. Dettre, CPA, MBA

President and Founder

True North Financial Planning, LLC

802-373-2591

tdettre@truenorthfinancialplanning.com

truenorthfinancialplanning.com

 

 

 

 
11
Dec

Year-End Financial Planning

By Thomas Dettre Comments are Off

The end of the year presents a unique opportunity to look at your overall personal financial situation.   With factors like tax reform, life changes or just working towards your goals, now is an especially important time to review things.  Taking what we now know about the new tax law and weaving together all of the other areas of your personal finances is a great way to way to start a review.  Below are some helpful things to consider and take action on, as appropriate, before the year ends.

 

Best wishes to everyone for a holiday season filled with peace and joy.

 

Income Tax Planning –Ensure you are implementing tax reduction strategies like maximizing your retirement plan contributions, tax loss harvesting in portfolios and making charitable contributions can all help reduce current and future tax bills.   It is also good  to review your current year tax projection based on your income and deductions year to date and how that may be different from before.

Estate Planning – Examine a flowchart of your current estate plan to visualize what would happen to each of your assets and how the current estate tax law will impact you.  Be sure that your estate planning documents are up to date – not just your will, but also your power of attorney, health care documents, and any trust agreements – and that the beneficiary designations are in line with your desires. If you have recently been through a significant life event such as marriage, divorce or the death of a spouse, this is especially important right now.

Investment Strategy– Recently, we’ve seen increased market volatility and it may feel uncomfortable.  Market declines are a natural part of investing, and understanding the importance of maintaining discipline during these times is imperative.  Regular portfolio rebalancing will allow you to maintain the appropriate amount of risk in your portfolio.  And, if you are retired and living off your portfolio, you also want to maintain an appropriate cash reserve to cover living expenses for a certain period of time so that you do not have to sell equities in a down market.

Charitable Giving – There are many ways to be tax efficient when making charitable gifts. For example, donating appreciated stock could make sense in order to avoid paying capital gains taxes. Further, you may want to consider bunching charitable deductions by deferring donations to next year or making your planned 2019 donations ahead of time. If the numbers are large enough, you might even consider a private foundation or donor advised fund for your charitable giving.

Retirement Planning –Think about your future when working becomes optional.  Whether you expect a typical full retirement or a career change to something different, determining an appropriate balance between spending and saving, both now and in the future is important. There are many options available for saving for retirement, and we can help you understand which option is best for you.

Cash Flow Planning – Review your 2018 spending and plan ahead for next year. Understanding your cash flow needs is an important aspect of determining if you have sufficient assets to meet your goals.  If you are retired, it is particularly important to maintain a tax efficient withdrawal strategy to cover your spending needs. If you have not yet reached age 70.5, it is prudent to ensure you are making tax-efficient withdrawal decisions.  If you are over age 70.5 make sure you are taking your required minimum distributions because the penalties are significant if you don’t.

Risk Management – It is always a good idea to periodically review your insurance coverages in various areas. Recent catastrophic events like hurricanes serve as a powerful reminder to make sure your property insurance coverage is right for your needs. If you are in a Federal disaster area, there are additional steps necessary to recover what you can and explore the tax treatment of casualty losses. Other areas of risk management that may need to be revisited include life and disability insurance.

Education Funding – Funding education costs for children or grandchildren is important to many people.  While the increase in college costs have slowed some lately, this is still a major expense for most families. It is important to know the many different ways you can save for education to determine the optimal strategy. Often, funding a 529 plan comes with tax benefits, so making contributions before the end of the year is key.  With the added flexibility of funding k-12 years (set at a $10,000 limit), 529 accounts become even more advantageous.

Elder Planning – There are many financial planning elements to consider as you age, and it is important to consider these things before it’s too late. Having a plan in place for who will handle your financial affairs should you suffer cognitive decline is critical.  Making sure your spouse and/or family understands your plans will help reduce future family conflicts and ensure your wishes are considered.

The decisions you make each year with your personal finances will have a lasting impact.  I hope these suggestions have begun to generate some insight to areas of your personal finances that need attention.  Please contact me if you would like to discuss your year-end planning, or any other aspects of your financial planning.

 

The information presented here is not specific to any individual’s personal circumstances, and does not constitute investment, tax, legal, or retirement advice or recommendations.

To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.

These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.

 

23
Nov

The Benefits of Donating Appreciated Investments

By Thomas Dettre Comments are Off

I am honored to be featured in the latest issue of the University of Vermont quarterly alumni magazine, Vermont Quarterly, in a piece about the benefits of donating appreciated stock and other investments.  See link below to the piece.

planned giving page (VQ November 2018)

31
Oct

Health Insurance Open Enrollment for 2019

By Thomas Dettre Comments are Off

November 1 Begins Open Enrollment for Health Insurance Marketplaces

Beginning on November 1, 2018, individuals (including their families) may apply for new health insurance or switch to a different health-care plan through a Health Insurance Marketplace under the Affordable Care Act (ACA). The open enrollment period for 2019 health coverage ends on December 15, 2018.

Individuals can use Health Insurance Marketplaces to compare health plans for benefits and prices and to select a plan that fits their needs. Individuals have until December 15, 2018, to enroll in or change plans for new coverage to start January 1, 2019. For those who fail to meet the December 15 deadline, the only way to enroll in a Marketplace health plan is by qualifying for a special enrollment period following certain life events that involve a change in family status (for example, marriage or birth of a child) or loss of other health coverage.

New for 2019

While the ACA (commonly referred to as Obamacare) has not been repealed or replaced, there have been changes to the law. The biggest change is the repeal of the tax penalty for failure to have qualifying health insurance. While the individual mandate requiring that most people have minimum essential health insurance coverage (unless an exception applies) still exists, the tax penalty for failure to have insurance has been repealed, effective January 1, 2019.

In addition, states have additional flexibility in how they select their Essential Health Benefits. In effect, states may elect to sell short-term health insurance policies with coverage terms of up to one year. These plans may offer fewer benefits compared with the 10 Essential Health Benefits covered under the ACA.

Those living in hurricane-affected areas in 2018 may apply for a special enrollment period, which provides extra time to apply for health insurance through the Marketplace. Affected areas are those designated by the Federal Emergency Management Agency (FEMA) as eligible to receive “individual assistance” or “public assistance.” So far, several counties in Georgia, Florida, South Carolina, and North Carolina have been designated eligible for federal assistance.

The federal government no longer runs SHOP Marketplaces for small businesses. As an alternative, small business employers may be able to contact insurance companies directly or work with a broker who is certified to sell SHOP policies.  In Vermont, small businesses (up to 100 employees) can obtain health insurance through Vermont Health Connect, or new for 2019, business association plans will be available.  Contact a qualified broker to find out more about association plans.  Individuals without access to employer or other coverage and purchasing coverage on their own can also obtain coverage on Vermont Health Connect.

 

Part D late enrollment penalty

Generally, if you did not sign up for Part D coverage during your initial enrollment period, and you don’t have other creditable drug coverage (at least comparable to Medicare’s standard prescription drug coverage) for at least 63 days in a row after your initial enrollment period, you may have to pay a late enrollment penalty. The late enrollment penalty is added to your monthly Part D premium. Your initial enrollment period is the seven-month period that starts three months before you turn age 65 (including the month you turn age 65) and ends three months after the month you turn 65.

 Medicare Open Enrollment Begins October 15

What is the Medicare Open Enrollment Period?

The Medicare Open Enrollment Period is the time during which people with Medicare can make new choices and pick plans that work best for them. Each year, Medicare plan costs and coverage typically change. In addition, your health-care needs may have changed over the past year. The Open Enrollment Period is your opportunity to switch Medicare health and prescription drug plans to better suit your needs.

When does the Open Enrollment Period start?

The Medicare Open Enrollment Period begins on October 15 and runs through December 7. Any changes made during Open Enrollment are effective as of January 1, 2019.

During the Open Enrollment Period, you can:

·       Join a Medicare Prescription Drug (Part D) Plan

·       Switch from one Part D Plan to another Part D Plan

·       Drop your Part D coverage altogether

·       Switch from Original Medicare to a Medicare Advantage Plan

·       Switch from a Medicare Advantage Plan to Original Medicare

·       Change from one Medicare Advantage Plan to a different Medicare Advantage Plan

·       Change from a Medicare Advantage Plan that offers prescription drug coverage to a Medicare Advantage Plan that doesn’t offer prescription drug coverage

·       Switch from a Medicare Advantage Plan that doesn’t offer prescription drug coverage to a Medicare Advantage Plan that does offer prescription drug coverage

What should you do?

Now is a good time to review your current Medicare plan. As part of the evaluation, you may want to consider several factors. For instance, are you satisfied with the coverage and level of care you’re receiving with your current plan? Are your premium costs or out-of-pocket expenses too high? Has your health changed, or do you anticipate needing medical care or treatment?

Open Enrollment Period is the time to determine whether your current plan will cover your treatment and what your potential out-of-pocket costs may be. If your current plan doesn’t meet your health-care needs or fit within your budget, you can switch to a plan that may work better for you.

What’s new in 2019?

Beginning in 2019, Medicare Part D Prescription Drug Plan participants will no longer be exposed to a coverage gap, referred to as the donut hole. Due to changes made by the Bipartisan Budget Act of 2018, Part D participants will see a reduction in their out-of-pocket costs for brand-name drugs from 35% to 25% — a reduction that was originally scheduled to take place in 2020. The gap in coverage for generic drugs will not be closed until 2020. In 2019, Part D participants will pay 37% of the cost of generic drugs.

Also in 2019, the Medicare Advantage Disenrollment Period will be replaced by the Medicare Advantage Open Enrollment Period. The Medicare Advantage Disenrollment Period, which ran from January 1 through February 14, allowed you to drop your Medicare Advantage Plan and return to Original Medicare (Parts A and B) and it allowed you to sign up for a Medicare Part D Prescription Drug Plan. In 2019, a new Medicare Advantage Open Enrollment Period will run annually from January 1 through March 31. If you’re enrolled in a Medicare Advantage Plan, you’ll have the opportunity to switch to another Medicare Advantage Plan, switch to Original Medicare Parts A and B, sign up for stand-alone Medicare Part D Prescription Drug Plan (if you are covered by Original Medicare), or drop your Medicare Part D Prescription Drug Plan.

Where can you get more information?

Determining what coverage you have now and comparing it to other Medicare plans can be confusing and complicated. Pay attention to notices you receive from Medicare and from your plan, and take advantage of help available by calling 1-800-MEDICARE or by visiting the Medicare website, medicare.gov.
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IMPORTANT DISCLOSURES

Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, legal, or retirement advice or recommendations. The information presented here is not specific to any individual’s personal circumstances.

To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.

These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.
Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2018.

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30
Sep

The Importance of Simplifying Accounts

By Thomas Dettre Comments are Off

Overview

There are many reasons you may have multiple investment and banking accounts.

  • Job changes resulted in multiple retirement plans located at different institutions
  • You started investing in companies or mutual funds by directly buying a small number of shares over a long period of time
  • A family member gifted shares of stock to you
  • A bank offered great rates on savings or loans that you just could not pass up
  • You don’t trust the financial services industry, and decided to keep multiple accounts to decrease the risk of an institution going out of business or someone stealing your money

These all seemed like good ideas at the time, but there are many reasons you should simplify.

Lost Accounts

As the years go by, you may move once, twice, or a dozen times, and forget some of the outstanding accounts you have created. Without any “action” in these accounts, institutions may not be able to find you, and then they will turn over your little pot of gold to the state.

Tax Preparation

In addition, with non-retirement accounts, you will have many outstanding tax forms which can make preparing tax returns more complicated and expensive. Did your grandmother gift you that one share of Disney and now you receive a 1099 for $1.37 for the year? Not only do you have that hassle with that 1099, that one share of stock will also go through probate when you die.

With many institutions providing tax forms online, you may forget to download the form only to be reminded a year later with a fun letter from the IRS letting you know about underpayment.

Retirement Plan Distributions

Most retirement plans have required distributions at age 70 ½. If you have multiple retirement accounts, it will be important to keep track of the required amount that needs to be distributed from all the accounts total. IRA accounts are calculated separately from 401k and 403b accounts. By consolidating accounts, it makes distributions much easier to track. And given the penalty for not taking a distribution is a hefty 50%, you don’t want to mess this up.

Ease of Future Financial Caretaking and Estate Administration

The more assets you have floating out there, the more work that will be required by your financial caretakers if you become incapacitated and by the executor of your estate if you die. This increases hassle, costs, and the risk of mistakes.

So how do you simplify?

Before simplifying, make certain you understand the tax and estate implications of your current situation. After that is clarified, begin to pare down the number of accounts to the following:

  • One checking and one savings account at one institution.
  • One IRA account and all old retirement plans such as 401k and 403b accounts should be rolled into this IRA.
  • One Roth IRA account (if you can have a Roth) – and all Roth 401k and Roth 403b contributions should be rolled into this Roth.
  • One brokerage account – all outstanding stock certificates, direct mutual fund holdings, and other investment accounts should be held in this account.

In addition, if you think there are accounts that you have forgotten about, check the unclaimed property site in the state you think it may be located. The USA.gov website has a great resource for this.

When you consolidate, check the titling and beneficiary designations to make certain they are congruent with your estate plan and your wishes.

By simplifying, you can ease your financial caretaking as you age and save you and your family money and angst in the process.

 Content provided by: Whealthcare Planning, LLC

The information presented here is not specific to any individual’s personal circumstances, and does not constitute investment, tax, legal, or retirement advice or recommendations.

To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.

These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.

24
Aug

Picking a Financial Caretaker

By Thomas Dettre No comments yet

I am pleased to present the latest edition of Financial Planning Tips.  This month, I have selected a topic that is often overlooked – picking a financial caretaker to manage your financial affairs if you are no longer able to do so yourself (either temporarily or permanently).  I believe everyone, at any adult age, should plan for this possibility.  Many people think that this type of planning only applies to older folks, but the reality is that even younger people can experience health or other life events that call for this type of assistance.

Picking a financial caretaker

At some point in your life, you may need a financial caretaker to pay your bills, watch over your investments and take care of your tax filings. For many people, the choice is easy – most often adult children or nieces and nephews are willing to help. For some people, there may not be anyone who you can easily turn to. What do you do if you are in this situation?

Hire a friend and a professional

If you do not have family you trust to help with your finances, consider hiring a friend you trust. However, to provide additional protection, hire a professional to oversee the person taking care of your finances, such as an accountant or fiduciary financial planner. How would this work?

First simplify your finances and consolidate your financial picture using a portal such as Mint.com or Yodlee. Set up automatic bill pay for as many payments as possible. Provide your friend and a professional with the login to your aggregator site. The two can work together to make certain you are doing a good job managing your finances.

Once you need assistance with your finances, you can begin with your friend “supervising” your bill paying, watching over your investments, and filing your taxes. Make certain they have a power of attorney to take over for you when needed, and that all of your financial institutions accept your power of attorney document.

Once your friend takes over paying the bills, make certain the financial planner or accountant periodically “audit” your friend’s work. You will have to pay for this service, but the peace of mind with having multiple eyes on your financial picture is well worth the cost.

What if there is no one who can help you pay your bills?

There are professional bill payers, but unfortunately, this profession is in its infancy and is not regulated. The American Association of Daily Money Managers is a great resource for professional bill payers, and they may also provide many other services.

If you hire a professional bill payer, they should provide a monthly accounting of your expenditures, collect all your financial statements, organize your information for your tax return, and review your investments with your professional advisers.

It is important to have your finances set up to your specifications in advance of hiring help so your instructions can be followed. For example, have an investment policy statement, budget, and plan for your sources of income and have the bill paying professional agree to follow your directives.

 

Content provided by: Whealthcare Planning, LLC

 

I hope you find this information to be helpful.  Please contact me with any questions, and feel free to forward to anyone who may benefit.

 

The information presented here is not specific to any individual’s personal circumstances, and does not constitute investment, tax, legal, or retirement advice or recommendations.
To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.

These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.

 

27
Jul

Controlling Health Care Costs

By Thomas Dettre No comments yet

Controlling your health care costs

Health care costs are spiraling out of control. New technology, advanced testing, and “designer” drugs along with a “fee for service” system encourages doctors to do more, putting pressure on health care costs. What can you do to get the care you need and keep costs under control? There are a number of steps you can take.

  • Live a healthy lifestyle – it shouldn’t have to be said, but the most important factor to stay healthy is to eat a healthy diet, exercise regularly, don’t smoke, and drink alcohol in moderation. Even if you already have health problems, lifestyle changes makes it easier to keep your health problems in good control.
  • Get appropriate preventive care – the medical system is geared to doing too much, and preventive care is not immune to this. There are competing recommendations on what is valuable in helping prevent illness or detect it early. The U.S. Preventive Services Task Force publishes unbiased recommendations based on what has been proven to be appropriate preventive care. Consider these guidelines along with your personal circumstances when choosing preventive testing.
  • Become an empowered patient – work with your doctor to understand the testing and treatment being offered and why it is being done. Ask the following questions:
    • How will the test being done help the doctor with diagnosis or treatment? Many tests are ordered because of “protocol” or “just because it would be good to know” and these are not good reasons to order costly testing. In addition, tests frequently have false positives or false negatives and you can spend even more time and worry chasing down tests that should have never been ordered in the first place.
    • What are all the options for treatment? Often doctors just recommend the treatment they think is best for you. Make certain you understand what is involved with the treatment and ask if there are any other treatments available that you should consider.
    • Are there less costly drugs that can be used? Doctors often provide medications that are convenient and don’t always consider the costs.
    • If you are on chronic medications, revisit your medication list with your doctor periodically to see if medications are still needed or if better or less expensive options are available.
  • Shop around for medications – charges for medication vary from pharmacy to pharmacy. The price difference is occasionally dramatic.
  • Stay in your insurance provider’s network – out of network doctors or hospitals can add greatly to the cost.
  • Follow your doctor’s advice – once you’ve agreed to a plan of care, be sure to follow through. And if for some reason you can’t follow the recommendations, be sure to let your doctor know that you aren’t following through and the reason you are unable to do so. They can help you make adjustments so you can follow through on what is needed to take care of your health.

It is sometimes difficult to be an empowered health care consumer when you are ill. If this is the case for you, enlist a family member or friend to help you better navigate your health care and follow through on these tips for your health care.

 

29
Jun

Retirement Confidence Improves for Workers, Declines for Retirees in Critical Areas

By Thomas Dettre No comments yet

Retirement Confidence Improves for Workers, Declines for Retirees in Critical Areas

In its 28th annual Retirement Confidence Survey, the Employee Benefit Research Institute (EBRI) discovered that 64% of today’s workers feel very or somewhat confident in having enough money to retire comfortably, up from 60% in 2017. And although far more retirees are very confident in their retirement prospects than workers (32% versus 17%, respectively), retiree confidence in their ability to meet basic expenses and medical expenses dropped from the previous year. Moreover, both workers and retirees question the role Social Security will play in future retiree income.

Basic expenses and health-care costs a concern for many retirees

Retiree confidence in meeting basic expenses dropped five percentage points, from 85% in 2017 to 80% in 2018, while confidence in meeting medical expenses dropped seven percentage points, from 77% in 2017 to 70% in 2018.

“Health care expenses in retirement appear to be playing a notable role in retirees’ confidence,” said Lisa Greenwald, executive vice president of Greenwald & Associates, which co-sponsors the survey each year. “Retirees are less confident in being able to afford medical expenses and the share very confident in affording long-term care also declined.

“Half of retirees say they didn’t even try to calculate health expenses before retirement, and more than four in ten retirees say their health care expenses are higher than they expected,” she continued. “However, those that did the calculation are less likely to report health is costing them more than expected.”

Retirees and workers question Social Security income

Although nearly seven out of 10 retirees report that Social Security is a major source of income for them today, just 45% say they are at least somewhat or very confident that the government program will be able to provide the same level of benefits for future retirees. Similarly, just 36% of workers expect Social Security to provide a major source of income.

This may be one reason why workers are looking for other ways to fill the income gap. For example, 68% of workers expect to work for pay during retirement, compared with just 26% of retirees who say that wages are a source of their income. Eight in ten workers expect that a workplace retirement plan will be a source of income, and the same number of current defined contribution plan participants express interest in putting at least some of their money in guaranteed lifetime income products.

Plan participation leads to confidence

As in past years, those who participate in defined contribution retirement plans were far more likely to report confidence in their ability to live comfortably in retirement than those who do not (76% versus 46%).

“Satisfaction with DC plans is very important because that will encourage their use in building up assets for retirement,” said EBRI senior research associate Craig Copeland. “However, the data suggest many plan participants don’t know what to do with their DC plan assets at retirement. Three in 10 (31%) said they don’t know whether they will roll the money into an IRA, keep it in the plan, or cash it out.”
Refer a friend To find out more click here
IMPORTANT DISCLOSURESBroadridge Investor Communication Solutions, Inc. does not provide investment, tax, legal, or retirement advice or recommendations. The information presented here is not specific to any individual’s personal circumstances.To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.

These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.
Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2018.To opt-out of future emails, please click here.