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What Issues Should You Consider Before the End of the Year?

The end of the year provides a number of financial planning opportunities and issues. These include tax planning issues, issues surrounding investment and retirement accounts, charitable giving, cash flow & savings, and insurance & estate planning issues.

We use the checklist below to proactively scan for many actionables to help serve our clients. In this checklist, we cover a number of planning issues that you need to consider prior to year-end to ensure you stay on track, including:

Various issues surrounding your investment and retirement accounts including matching capital gains against any investment losses in taxable investment accounts and ensuring that all Required Minimum Distributions (RMDs) are taken.
Tax planning issues including moves dependent upon your prospects for higher or lower income in the future. You will also want to review where you sit relative to your tax bracket as this is a good time to make moves to fill out your tax bracket for the current year that also might prove beneficial down the road.
For those who are charitably inclined there are several strategies that will also help reduce your tax liability that can be considered based upon your situation.
For those who own a business, tax reform has created some opportunities surrounding pass-through income from your business to your personal return. Accelerating or deferring business expenses presents another solid planning opportunity.
It’s wise to review your cash flow situation as you near year-end to see if you can fund a 529 plan for children or grandchildren or to see if you can save more in an HSA or employer-sponsored retirement plan like a 401(k).

This is a comprehensive checklist of the types of year-end planning issues that you should be discussing with your financial advisor to ensure you maximize cash flow and tax opportunities in the current year and beyond.

Issues You Should Consider Before the End of Year

ASSET & DEBT ISSUES

Do you have unrealized investment losses?
If so, consider realizing losses to offset any gains and/or write off $3,000 against ordinary income.

Do you have investments in taxable accounts that are subject to end-of-year capital gain distributions?
If so, consider strategies to minimize tax liability.

Did you inherit an IRA or 401(k) from someone who passed away last year but have not split the account yet (assuming there were multiple beneficiaries)?
If so, consider splitting the account before the end of the year to avoid calculating the Required Minimum Distribution (RMD) based on the oldest beneficiary.

Are you over the age of 70.5, or are you taking an RMD (from an inherited IRA)? If so, consider the following:
– RMDs from multiple IRAs can be aggregated.
– RMDs from multiple 403bs can be aggregated.
– RMDs from an employer retirement plan must be calculated and taken separately. No aggregation is allowed.
– RMDs from inherited IRAs can not be aggregated with Traditional IRAs.

TAX PLANNING ISSUES

Do you expect your income to increase in the future?
If so, consider the following strategies to minimize your future tax liability:
– Make Roth IRA and Roth 401(k) contributions and Roth IRA conversions.
– If offered by your employer plan, consider after-tax 401k contributions.
– If over age 59.5, consider accelerating IRA withdrawals to fill up lower tax brackets.

Do you expect your income to decrease in the future?
If so, consider strategies to minimize your tax liability now, such as Traditional IRA and 401(k) contributions instead of contributions to Roth accounts.

Do you have any losses for this year or carryforwards from prior years?
If so, consider the following:
– There may be tax-loss harvesting opportunities.
– You may be able to take the loss or use the carryforward to reduce taxable income by up to $3,000.

Are you on the threshold of a tax bracket?
If so, consider strategies to defer income or accelerate deductions and strategies to manage capital gains and losses to keep you in the lower bracket. Consider the following important tax thresholds:
– If taxable income is below $160,724 ($321,449 if Married Filing Jointly [MFJ]), you are in the 24% percent marginal tax bracket. Taxable income above this bracket will be taxed at 32%.
– If taxable income is above $434,550 ($488,850 if MFJ), any capital gains will be taxed at the higher 20% rate.
– If your modified adjusted gross income (MAGI) is over $200,000 ($250,000 if MFJ), you may be subject to the 3.8% Medicare surtax on the lesser of net investment income or the excess of MAGI over $200,000 ($250,000 if MFJ).
– If you are on Medicare, consider the impact of Medicare’s Income-Related Monthly Adjusted Amount (IRMAA) surcharges.

Are you charitably inclined and want to reduce taxes?
If so, consider the following:
– If you expect to take the standard deduction ($12,200 if single, $24,400 if MFJ), consider bunching your charitable contributions (or contributing to a donor-advised fund) every few years which may allow itemization in specific years.

Will you be receiving any significant windfalls that could impact your tax liability (inheritance, Restricted Stock Units vesting, stock options, bonus)?
If so, review your tax withholdings to determine if estimated-payments may be required.

Do you own a business?
If so, consider the following:
– If you own a pass-through business, consider the Qualified Business Income Deduction eligibility rules.
– Consider the use of a Roth vs. Traditional Retirement plan and its potential impact on taxable income and Qualified Business Income.
– If you have business expenses, consider if it makes sense to defer or accelerate the costs to reduce overall tax liability.
– Some retirement plans, such as a Solo 401(k), must be opened before year-end.

Have there been any changes to your marital status?
If so, consider how your tax liability may be impacted based on your marital status as of December 31st.

CASH FLOW ISSUES

Are you able to save more?
If so, consider the following:
– If you have an HSA, you may be able to save $3,500 ($7,000 for a family) and an additional $1,000 If you are over the age of 55.
– If you have an employer retirement plan, such as a 401(k), you may be able to save more but must consult with the plan provider as the rules vary as to when you can make changes.
– For 2019 the maximum salary deferral contribution is $19,000, plus the catch-up contribution if over the age of 50 of $6,000 per year.

Do you have a 529 plan? If so, consider the following:
– You can contribute up to $15,000 ($30,000 if a joint gift is made) each year without filing a gift tax return.
– Alternatively, you can elect the Five Year Accelerated Gift of $75,000.

INSURANCE PLANNING ISSUES

Will you have a balance in your FSA before the end of the year?
If so, consider the following options your employer may offer:
– Some companies allow you to roll up to $500 in your FSA account over the previous year.
– Some companies offer a grace period up until April 15th to spend the unused FSA funds.
– Many companies offer you 90 days to submit receipts from the previous year.
– If you have a Dependent Care FSA, check the deadlines for unused funds as well.

Did you meet your health insurance plan’s annual deductible?
If so, consider incurring any additional medical expenses before the end of the year at which point your annual deductible will reset.

ESTATE PLANNING ISSUES

Have there been any changes to your family, heirs, or have you bought/sold any assets this year?
If so, consider reviewing your estate plan.

Are there any gifts that still need to be made this year?
If so, you can make gifts up to $15,000 ($30,000 if a joint gift is made) per year to an individual without filing a gift tax return.

OTHER ISSUES

Do you have children in high school or younger who plan to attend college?
If so, consider financial aid planning strategies, such as reducing income in specific years to increase financial aid packages.

Inherited IRAs

Inheritances received via an IRA can be advantageous since you can choose to stretch the required distributions across your life expectancy, giving the assets more time to grow (plus taxes aren’t due until withdrawals are made). Here are key best practices to keep in mind:

When you inherit an IRA from anyone other than your spouse, you can’t roll it over into your own IRA
Instead, you have to retitle the IRA so it is clear the owner died and you are the beneficiary
If you move the account to a new custodian, make sure it is a “trustee to trustee” transfer”
If the check is mistakenly made out to you, the IRS will consider it a “total distribution” subject to tax and if you are anyone other than the surviving spouse, it would effectively end the IRA
Be aware there are deadlines for all of these actions
If the IRA owner dies after age 70 1/2 (when required withdrawals start) and didn’t yet take a withdrawal for the year, the heir has to do so by December 31
(if you miss the deadline, you are subject to a 50% penalty on the amount you should have withdrawn!)
If you are a nonspouse beneficiary, determine the required distribution by looking up your life expectancy on the single-life table in IRS publication 590
(most IRA custodians will calculate the required withdrawal amount for you but you need to make sure they are using the inherited IRA calculation)
Once you receive a 1099 form, confirm that the custodian properly indicated the distribution as a code “4”

Know More, Make More

A new academic study finds that more financially knowledgeable people earn a higher return on their 401(k) retirement savings.

Dr Robert Clark (NC State University), Dr. Annamaria Lusardi (George Washington University), and Dr. Olivia Mitchell (University of Pennsylvania) analyzed a unique dataset that combined 401(k) performance data for 20,000 employees plus financial literacy data for the same workers.

Investors deemed to be more financially knowledgeable than peers enjoyed an estimated 1.3% higher annual return in their 401(k)s or other defined contribution plans than those with less knowledge.

According to the study’s authors:
“We show that more financially knowledgeable employees are also significantly more likely to hold stocks in their 401(k) plan portfolios. They can also anticipate significantly higher expected excess returns, which over a 30-year working career could build a retirement fund 25% larger than that of their less-knowledgeable peers.”

Financially savvy people tend to save more and are more likely to invest those savings in the stock market. But past studies haven’t clearly demonstrated that these people necessarily make better investment decisions. The authors look at patterns in 401(k) retirement accounts and find that more sophisticated investors do indeed get better returns on their savings.

Source: “Financial Knowledge and 401(k) Investment Performance”

Class of 2019: Financial Advice That will CHANGE YOUR LIFE

The following is a brief excerpt from the commencement address by Dr. Chris Mullis (Financial Planner & Founding Partner at NorthStar Capital Advisors) to the graduating class of Providence Day School on May 31, 2013. The full text of Dr. Mullis’ speech, that includes career advice, financial guidance, and a few pearls of wisdom, can be found here.

At our financial advisory firm, we developed complex computer algorithms and use them to manage our clients’ investment portfolios. But the basic steps you need to take to manage your own money well are deceptively simple. First, live within your means and avoid being caught up in rapid lifestyle inflation. You will not live like your parents when you first start out. Second, save and invest your money wisely. Let me elaborate on this point.

Wealth accumulation depends on three factors: how much you save, the rate at which your money grows, and how long you save. That last factor, time, is very, very important. There’s an urban legend that Albert Einstein once said that compounding interest is the most powerful force in the Universe. That quote is likely misattributed but the message is spot on. If you save $5,000 a year for 40 years and earn 8% annually, you will eventually have $1.3M. But if you delay starting for merely 5 years, your results after 35 years will be only $860k. That 5-year delay preserved $25k of short-term capital but ultimately cost you >$400k in the long run. Time is the most powerful lever in the machinery of investing. Nothing else comes close to it.

So what do you need to do? Start saving and investing right out of high school regardless of how hard you think it hurts or how unpleasant the tradeoffs. Even if you set aside only 5% of your paycheck starting out, do it to get into the habit of saving. Delaying getting serious about investing until my 30s was a significant financial mistake on my part. No one ever sat me down and explained how important it is to start investing early. Now that we’ve had this little talk, you’ll never be able to say that no one told you.

Planting a Tree

Warren Buffett once said, “Someone’s sitting in the shade today because someone planted a tree a long time ago.” It’s planting season and your deadline to act is coming up very soon!

If you have an individual retirement account (IRA) or are considering opening an IRA, 2018 contributions to IRAs can still be made up through April 15, 2019.

Make it a double? If you really want to make the most of the growth potential that retirement accounts offer, you should consider making a double contribution this year: a last-minute one for the 2018 tax year and an additional one for 2019, which you’ll claim on the tax return you file next year. That strategy can add much more to your retirement nest egg than you’d think.

2018 / 2019 Annual IRA Contribution Limits*

Traditional IRA:
$5,500 + $1,000 if you are 50+ years (2018)
$6,000 + $1,000 if you are 50+ years (2019)
Roth IRA:
$5,500 + $1,000 if you are 50+ years (2018)
$6,000 + $1,000 if you are 50+ years (2019)

*Note: Your specific maximum contribution limit can be affected by your taxable compensation for the year and the availability of an employer-sponsored retirement plan.

The savings, tax deferral, and earnings opportunities of an IRA make good financial sense. The sooner you make your contributions, the more your money can grow, and the more “shade” you’ll have to enjoy in the future.

If you have any questions about how to make the most of your IRA savings opportunity, please give us a call at 704-350-5028.

Thirty Years Ago Today…

Thirty years ago to this day, the following words were written:

“We do not have, never have had, and never will have an opinion about where the stock market, interest rates or business activity will be a year from now.”

–Warren E. Buffett, the world’s most admired, least imitated investor, in his annual letter to shareholders 30 years, dated February 28, 1989.

Note:

On February 28, 1989, the Standard & Poor’s 500-Stock Index closed at 288.26. Yesterday it closed at 2,792, fairly close to ten times where it was on the day of Mr. Buffett’s letter. Of course, this ignores dividends.
The cash dividend of the S&P 500 for the full year 1989 was $11.73. For the full year 2018, it was $53.61, a bit more than four and a half times where it was in 1989.
To get a sense of how these increases compare to inflation, note that the Consumer Price Index stood at 122 in February 1989. In January 2019 it was 253, having slightly more than doubled in the interim.

When will we ever learn?
It was never about “timing the market.”
It is always about TIME IN THE MARKET.

Tune Out the Noise…your portfolio will thank you for it!

One Day in Mainstream Media Market Headlines…

6:00 AM MarketWatch US Futures Down As Euro Pressures Mount

6:30 AM TheStreet.com US Stock Futures Recover on Amazon Tablet Expectation

7:15 AM MarketWatch Stocks Fall in Pre-Market Amid Global Concerns

8:00 AM Minyanville Stocks Buoyant Ahead of August Durable Goods Orders

8:10 Wall Street Journal US Marts Down Briefly, Techs Remain Higher

9:15 AM TheStreet.com US Stocks Mixed Ahead of Open After Durable Goods Orders

9:45 AM MarketWatch Stocks Decline Slightly On Economic Concerns

10:15 AM MarketWatch US Stocks Fall on European Woes

11:00 AM Minyanville Stocks Up After Morning in Which They Were Slightly Down

11:30 AM TheStreet.com Stocks Exist at Half Past 11 AM this Morning

12:00 PM MarketWatch Stocks Slightly Higher at Mid-Day as I Pick Up My Dry Cleaning

12:15 PM Bloomberg Markets Stabilize as Japanese PM Explains Proclivity for Vending Machine Pornography

12:30 PM Minyanville US Markets Rally Modestly as Stocks Don’t Be Down

1:00 PM TheStreet.com Stocks Off Slightly After Cloud Passes Briefly in Front of the Sun

1:30 PM Reuters We are Better than You and You Probably Realise that by Now

1:50 PM Wall Street Journal US Stocks Extend Advance after Not Extending Decline

2:15 PM Minyanville Markets in Retreat as Euro Pressures Threaten Global Recovery

3:10 PM TheStreet.com US Stocks Unchanged, We Are Seriously Running Out of Reasons for Random Things You Guys

3:11 PM TheStreet.com US Stocks Still Unchanged, We Just Checked For You

3:34 PM Bloomberg Markets Neutral Into the Close

3:37 PM MarketWatch Neutral Markets Into the Close

3:50 PM Wall Street Journal Stocks Set to Close Flat on Session as European Woes Continue to Cause Concern

3:56 PM Reuters US Stock Market Flat on Close

4:01 PM MarketWatch No Change in US Stocks Today on Excessive Nonsensical Headlines, Tune in Tomorrow

Avoid getting caught up in the hype and drama of media’s talking heads.

Asset Management vs. Financial Planning

At a 100,000-ft level, we do two things in our financial advisory practice: Asset Management* and Financial Planning. Although these two functions are distinct, they are very much interrelated. Both are essential components for our client families’ long-term success, but it’s important to understand and appreciate the differences:
(* Asset Management also falls under the monikers of “investment management” or “portfolio management”)

Asset management is about asset allocation, expected returns, risk tolerance and time horizons.
Financial planning is about making wise choices about the use of debt, setting up college savings plans, tax efficiency, estate planning and ensuring your insurance needs are taken care of.

Asset management is about managing investments.
Financial planning is about managing investors.

Asset management is about portfolio construction and risk management.
Financial planning is about comprehensive planning and emotional management.

Asset management is about measuring portfolio performance by comparing results to predetermined index benchmarks.
Financial planning is about measuring your performance against your true benchmark — your goals.

Asset management is about allowing your money to work for you to help you reach your financial goals.
Financial planning is about helping people define their goals, dreams, desires and fears.

Asset management is about creating a process that guides your actions in a wide variety of market environments.
Financial planning is about implementing a plan and making corrections along the way as life or market and economic forces intervene.

Asset management is about creating a portfolio that can survive severe market disruptions.
Financial planning is about creating a financial plan that can survive severe life disruptions.

Asset management deals with financial capital.
Financial planning deals with human capital.

Asset management is about growing and/or preserving your wealth.
Financial planning is about understanding why money is important to you personally.

Asset management is about where to invest a lump sum.
Financial planning is about how and when to invest a lump sum.

Asset management is about asset allocation.
Financial planning is about asset location.

Asset management is about creating policies to guide your actions in the face of economic and market uncertainty.
Financial planning is about helping people make better decisions with their money in the face of uncertainty that is impossible to reduce.

Asset management helps you understand how much you need to earn on your investments to meet your future spending needs.
Financial planning helps you understand how much you need to save meet your future spending needs.

Asset management helps you figure out where to take your money from when you need to spend it.
Financial planning helps you figure out where to spend your money in a way that makes you happy.

Asset management helps you grow your savings to meet future consumption needs.
Financial planning helps you plan and budget for future consumption needs.

Asset management is about creating a long-term process to guide your actions in the markets.
Financial planning is about creating systems that allow you to spend less time worrying about your money.

Asset management is about reducing the anxiety that comes from the volatile nature of the markets.
Financial planning is about reducing the anxiety that comes from making important decisions with your money.

Asset management involves growing your wealth so some day you can become wealthy.
Financial planning involves figuring out what a wealthy life means to you.

To get the most benefit from asset management, you really need comprehensive, well thought-out financial planning.

25 Important Documents You’ll Need Before You Die

Design your “Death Dossier” soon or you could be setting up your heirs for frustration and financial pain:

25 Important Documents You’ll Need Before You Die

The Essentials
• Will
• Letter of instruction
• Trust documents
Proof of Ownership
• Housing, land and cemetery deeds
• Escrow mortgage accounts
• Proof of loans made and debts owed
• Vehicle titles
• Stock certificates, savings bonds and brokerage accounts
• Partnership and corporate operating agreements
• Tax returns
Bank Accounts
• List of bank accounts
• List of all user names and passwords
• List of safe-deposit boxes

Health-Care Confidential
• Personal and family medical history
• Durable health-care power of attorney
• Authorization to release health-care information
• Living will
• Do-not-resuscitate order
Life Insurance and Retirement
• Life-insurance policies
• Individual retirement accounts
• 401(k) accounts
• Pension documents
• Annuity contracts
Marriage and Divorce
• Marriage license
• Divorce papers

Learn more in this article

Simplicity

Although we live in a complex world, this doesn’t mean we have to accept nor invite complications. In fact, very often a simple solution is the best solution. So what are some possible non-complex approaches to complicated finances?

Advisor Tony Isola, CFP, has a few ideas for you to consider:

Automate your retirement contributions and eliminate the default status of doing nothing;
Try to stay married (divorce is a great destroyer of wealth);
Buy experiences and not things, and de-clutter your life while increasing happiness;
Do not spend $250K for a four-year private college education for your children;
Exercise and eat right; this will save you a boatload of cash on health care in the long run;
Bank at a credit union;
Do not invest a dime on an investment “tip;”
Don’t be cheap when finding an accountant;
Check your investment portfolio annually, not every day;
Don’t cheat people because karma is a bi*ch; and
Get disability insurance.

Sir Isaac Newton chimed in on the subject as well: “Nature is pleased with simplicity and nature is no dummy.”

Source: ATM

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What Issues Should You Consider Before the End of the Year?

Inherited IRAs

Know More, Make More

Class of 2019: Financial Advice That will CHANGE YOUR LIFE

Planting a Tree

Thirty Years Ago Today…

Tune Out the Noise…your portfolio will thank you for it!

One Day in Mainstream Media Market Headlines…

Avoid getting caught up in the hype and drama of media’s talking heads.

Asset Management vs. Financial Planning

25 Important Documents You’ll Need Before You Die

25 Important Documents You’ll Need Before You Die

Simplicity

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