Greetings to all, as we move closer to the end of what has been a challenging year. I hope this email finds you well.
An important set of decisions regarding saving for retirement is which type of retirement plan to contribute to, how much to contribute, and whether to contribute with pre-tax or after-tax funds. As with many financial planning decisions, the answer can vary depending on your situation.
The article below points out some important considerations and guidance on this topic. It is important to periodically re-visit whatever decisions you make, usually at least once a year or more often if your situation changes significantly. A good time for many people to do this is later in the year when deciding on other employer or business benefits for the next year, such as health and other insurance coverages (e.g., life, disability).
Note that planning tips and other info are now posted on my website, http://www.
Best wishes for a peaceful and safe holiday season.
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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. |
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.
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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
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:
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.
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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.
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.
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.
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Overview
There are many reasons you may have multiple investment and banking accounts.
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:
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.
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.
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.
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.
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