For many people, finding time to keep on top of financial matters is challenging. But given many Americans have additional time these next few weeks as the country works through Covid-19, this could be an excellent time to make progress on critical but simple financial matters.

Cornerstone will share during this time ideas to help you make progress on these matters, starting today with updating Beneficiary Designations. Please pass along to anyone you feel may be interested in this topic.

Assets pass to beneficiaries, including spouses, in different forms. The most common tools used to distribute assets are trusts, wills, and a document commonly referred to as Beneficiary Designation. Beneficiary Designation assets are not transferred to loved ones by trusts or wills. Instead, these assets go directly to the beneficiaries named. For this reason, this is an essential tool that requires attention.

Here’s a list of assets that are distributed via beneficiary designation:

  • 401k, 403b and 457 accounts
  • IRA and Roth IRA accounts
  • Defined Benefit accounts
  • Life Insurance policies
  • Annuities
  • Payable on Death (POD) bank accounts
  • Transfer on Death (TOD) investment accounts
  • Property that has joint tenancy with rights of survivorship

Most everyone saving for future needs owns at least one of these assets. The problem is, these assets are occasionally left unattended if there is a change in an investor’s life (death of a significant other, divorce, marriage, change in family and relationships, and so on). Unfortunately, we hear stories about loved ones who were devastated personally and financially due to an outdated beneficiary designation form.

If you have questions on how this all works, would like a thinking partner, or would like assistance on how to update your accounts, please contact Cornerstone for help. Reviewing beneficiary designation is part of our client planning process. We are happy to extend a complimentary review to you as a way to help you make the most of this time. And as an opportunity to learn more about how we can help in other areas.

This offer to review beneficiary designations is extended to your friends, family, and colleagues. While some people may have an investment or financial advisor, most don’t work with a Certified Financial Planner™. We are happy to fill in this gap if we can and help them with other questions they may have about their personal finances.

Right now, as we deal with Covid-19, we are walking through history. There is no need for you or your family and friends to walk through this alone.

What younger investors need to know.

The SECURE Act passed into law in late 2019 and changed several aspects of retirement investing. These modifications included modifying the ability to stretch an Individual Retirement Account (IRA) and changing the age when IRA holders must start taking requirement minimum distributions to 72-years-old.1,2

While those provisions grabbed the headlines, several other smaller parts of the SECURE Act have caught the attention of individuals who are raising families and paying off student loan debt. Here’s a look at a few.

Changes for college students. For those who have graduate funding, the SECURE Act allows students to use a portion of their income to start investing in retirement savings. The SECURE Act also contains a clause to include “aid in the pursuit of graduate or postdoctoral study.” A grant or fellowship would be considered income that the student could invest in a retirement vehicle.3

One other provision of The SECURE Act:  you can use your 529 Savings Plan to pay for up to $10,000 of student debt. Money in a 529 Plan can also be used to pay for costs associated with an apprenticeship.4

Funds for a growing family. Are you having a baby or adopting? Under the SECURE Act, you can withdraw up to $5,000 per individual, tax-free from your IRA to help cover costs associated with a birth or adoption. However, there are stipulations. The money must be withdrawn within the first year of this life change; otherwise, you may be open to the tax penalty.5

Annuities and your retirement plan. This might be the most complicated part of the SECURE Act. It’s now easier for your employer-sponsored retirement plans to have annuities added to their investment portfolio. This was accomplished by reducing the fiduciary responsibilities that a company may incur in the event the annuity provider goes bankrupt. The benefit is that annuities may provide retirees with guaranteed lifetime income. The downside, however, is that annuities are often the incorrect vehicle for investors just starting out or far from retirement age.6

The best course is to make sure that you review any investment decisions or potential early retirement withdrawals with your advisor.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 – Under the SECURE Act, your required minimum distribution (RMD) must be distributed by the end of the 10th calendar year following the year of the Individual Retirement Account (IRA) owner’s death. A surviving spouse of the IRA owner, disabled or chronically ill individuals, individuals who are not more than 10 years younger than the IRA owner, and child of the IRA owner who has not reached the age of majority may have other minimum distribution requirements.

2 – Under the SECURE Act, in most circumstances, once you reach age 72, you must begin taking required minimum distributions from a Traditional Individual Retirement Account (IRA). Withdrawals from Traditional IRAs are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty. You may continue to contribute to a Traditional IRA past age 70½ under the SECURE Act as long as you meet the earned-income requirement.

3 – forbes.com/sites/simonmoore/2019/12/23/if-youre-a-graduate-student-the-secure-act-makes-easier-to-save-for-retirementheres-how/#207d85d322ef [12/23/2019]. A 529 plan is a college savings play that allows individuals to save for college on a tax-advantages basis. State tax treatment of 529 plans is only one factor to consider prior to committing to a savings plan. Also consider the fees and expenses associated with the particular plan. Whether a state tax deduction is available will depend on your state of residence. State tax laws and treatment may vary. State tax laws may be different than federal tax laws. Earnings on non-qualified distributions will be subject to income tax and a 10% federal penalty tax.

4 – forbes.com/sites/simonmoore/2019/12/21/who-benefit-from-the-recent-changes-to-us-savings-programs/#4b86e86f6432 [12/21/2019]

5 – congress.gov/bill/116th-congress/house-bill/1994/text#toc-HCF4CC8DCF6E14B28968474EB935AB36D [05/23/2019]

6 – marketwatch.com/story/will-the-secure-act-make-your-retirement-more-secure-2020-01-16 [01/16/2020]. The guarantees of an annuity contract depend on the issuing company’s claims-paying ability. Annuities have contract limitations, fees, and charges, including account and administrative fees, underlying investment management fees, mortality and expense fees, and charges for optional benefits. Most annuities have surrender fees that are usually highest if you take out the money in the initial years of the annuity contact. Withdrawals and income payments are taxes as ordinary income. If a withdrawals is made prior to age 59 ½, a 10% federal income tax penalty may apply (unless an exception applies).

One study asserts that these relationships can make a difference for investors.

What is a relationship with a financial advisor worth to an investor? A 2019 study by Vanguard, one of the world’s largest money managers, attempts to answer that question.

Vanguard’s whitepaper concludes that when an investor worked with an advisor and received professional investment advice, they saw a net portfolio return about 3% higher over time.1

How did this study arrive at that conclusion? By comparing self-directed investor accounts to an advisor model, Vanguard found that the potential return relative to the average investor experience was higher for individuals who had financial advisors.1

Vanguard analyzed three key services that an advisor may provide: portfolio construction, wealth management, and behavioral coaching. It estimated that portfolio construction advice (e.g., asset allocation, asset location) could have added up to 1.2% in additional return, while wealth management (e.g., rebalancing, drawdown strategies) may have contributed over 1% in additional return.1

The biggest opportunity to add value was in behavioral coaching, which was estimated to be worth about 1.5% in additional return. Financial advisors can use their insight to guide clients away from poor decisions, such as panic selling or accepting excessive risk in a portfolio. Indeed, the greatest value of a financial advisor may be in helping individuals adhere to an agreed-upon financial and investment strategy.1

This study provided feedback and estimates based on customer experience. The value of advice is not a guarantee of performance. Actual returns will fluctuate.

Of course, financial advisors can account for additional value not studied by Vanguard, such as helping clients implement wealth protection strategies, which protect against the financial consequences of loss of income, and coordinating with other financial professionals on tax management and estate planning.

You could argue that a financial advisor’s independence adds qualitative value. It should be noted that not all financial advisors are independent. Some are basically employees of brokerages, and they may be encouraged to promote and recommend certain investments of those brokerages to their clients.2

Both types of financial advisors may receive their compensation in two ways: through transaction fees and through ongoing fees. Financial advisory firms are required to disclose how their professionals are compensated with the Securities and Exchange Commission (SEC).2

After years of working with a financial advisor, the value of a relationship may be measured in both tangible and intangible ways. Many such investors are grateful they are not “going it alone.”

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 – advisors.vanguard.com/iwe/pdf/ISGQVAA.pdf [2/19]

2 – cnbc.com/2019/10/23/guide-to-choosing-the-right-financial-professional-for-you.html [10/23/19]

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

What financial, business, or life priorities do you need to address for the coming year? Now is a good time to think about the investing, saving, or budgeting methods you could employ toward specific objectives, from building your retirement fund to managing your taxes. You have plenty of choices. Here are a few ideas to consider:

Can you contribute more to your retirement plans this year? In 2020, the contribution limit for a Roth or traditional individual retirement account (IRA) remains at $6,000 ($7,000, for those making “catch-up” contributions). Your modified adjusted gross income (MAGI) may affect how much you can put into a Roth IRA: singles and heads of household with MAGI above $139,000 and joint filers with MAGI above $206,000 cannot make 2020 Roth contributions.1 

Before making any changes, remember that withdrawals from traditional IRAs are taxed as ordinary income, and if taken before age 59½, may be subject to a 10% federal income tax penalty. To qualify for the tax-free and penalty-free withdrawal of earnings, Roth IRA distributions must meet a five-year holding requirement and occur after age 59½.2

Make a charitable gift. You can claim the deduction on your tax return, provided you itemize your deductions with Schedule A. The paper trail is important here. If you give cash, you need to document it. Even small contributions need to be demonstrated by a bank record, payroll deduction record, credit card statement, or written communication from the charity with the date and amount. Incidentally, the Internal Revenue Service (I.R.S.) does not equate a pledge with a donation. If you pledge $2,000 to a charity this year, but only end up gifting $500, you can only deduct $500.3

These are hypothetical examples and are not a replacement for real-life advice. Make certain to consult your tax, legal, or accounting professional before modifying your strategy.

See if you can take a home office deduction for your small business. If you are a small-business owner, you may want to investigate this. You may be able to legitimately write off expenses linked to the portion of your home used to exclusively conduct your business. Using your home office as a business expense involves a complex set of tax rules and regulations. Before moving forward, consider working with a professional who is familiar with home-based businesses.4

Open an HSA. A Health Savings Account (HSA) works a bit like your workplace retirement account. There are also some HSA rules and limitations to consider. You are limited to a $3,550 contribution for 2020, if you are single; $7,100, if you have a spouse or family. Those limits jump by a $1,000 “catch-up” limit for each person in the household over age 55.5

If you spend your HSA funds for nonmedical expenses before age 65, you may be required to pay ordinary income tax as well as a 20% penalty. After age 65, you may be required to pay ordinary income taxes on HSA funds used for nonmedical expenses. HSA contributions are exempt from federal income tax; however, they are not exempt from state taxes in certain states.

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

Before adjusting your asset, consider working with an investment professional who is familiar with tax rules and regulations.

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

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

These are general guidelines and are not a replacement for real-life advice. So, make certain to speak with a professional who understands your situation before making any changes.

Are you marrying in 2020? If so, why not review the beneficiaries of your retirement accounts and other assets? When considering your marriage, you may want to make changes to the relevant beneficiary forms. The same goes for your insurance coverage. If you will have a new last name in 2020, you will need a new Social Security card. Additionally, the two of you may have retirement accounts and investment strategies. Will they need to be revised or adjusted with marriage?

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

Consider the tax impact of any upcoming transactions. Are you planning to sell any real estate this year? Are you starting a business? Do you think you might exercise a stock option? Might any large commissions or bonuses come your way in 2020? Do you anticipate selling an investment that is held outside of a tax-deferred account?

If you are retired, and in your seventies, remember your RMDs. In other words, Required Minimum Distributions (RMDs) from traditional retirement accounts. There is a new development to report on this, as the Setting Every Community Up for Retirement Enhancement (SECURE) Act just altered a key rule pertaining to these mandatory withdrawals. Under the SECURE ACT, in most circumstances, once you reach age 72, you must begin taking RMDs from most types of these accounts. The previous “starting age” was 70½.6

This new RMD rule applies only to those who will turn 70½ in 2020 or later. If you were 70½ when 2019 ended, you must take your initial RMD(s) by April 1, 2020, at the latest.6

If you have already begun taking RMDs, your annual deadline for them becomes December 31 of each year. The I.R.S. penalty for failing to take an RMD can be as much as 50% of the RMD amount that is not withdrawn.6

Vow to focus on being healthy and wealthy in 2020. And don’t be afraid to ask for help from professionals who understand your individual situation.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 – thefinancebuff.com/401k-403b-ira-contribution-limits.html [7/16/19]
2 – kiplinger.com/article/retirement/T032-C000-S000-how-much-can-you-contribute-traditional-ira-2020.html [1/10/20]
3 – irs.gov/newsroom/charitable-contributions [6/28/19]
4 – nerdwallet.com/blog/taxes/home-office-tax-deductions-small-business/ [1/22/19]
5 – cnbc.com/2019/06/03/these-are-the-new-hsa-limits-for-2020.html [6/4/19]
6 – thestreet.com/retirement/secure-retirement-act-makes-big-changes-to-how-you-save [12/21/19]

By Cornerstone Wealth Management

Before it is too late, let’s clear up some important misconceptions. While some retirement clichés have been around for decades, others have recently joined their ranks. Let’s explore seven popular retirement myths.

  1. “When I’m retired, I won’t need to invest anymore.” Many see retirement as an end of a journey, a finish line to a long career. In reality, retirement can be the start of a new phase of life that could last for decades. By not maintain positions in equities (stocks or mutual funds), it is possible to lose ground to purchasing power as even moderate inflation has the potential to devalue the money you’ve saved. Depending on your situation, a good rule of thumb may be to keep saving money, keep earning income, keep invested, even in retirement.
  2. “My taxes will be lower when I retire.” Not necessarily. While earning less or no income could put you in a lower tax bracket, you could also lose some of the tax breaks you enjoyed during your working years. In addition, local, state and federal taxes will almost certainly rise over time. In addition, you could pay taxes on funds withdrawn from IRAs and other qualified retirement plans. This could include a portion of your Social Security benefits. Although your earned income may decrease, you may end up losing a meaningfully larger percentage of it to taxes after you retire.1
  3. “I don’t have enough saved. I’ll have to work the rest of my life. If your retirement resources are falling short of what you might need in later years, working longer may be the most practical solution. This will allow you to use earned income to cover expenses for a longer period, and shorten the number of years you would need to otherwise cover when you stop work. Meanwhile, you may be able to make larger, catch-up contributions to IRAs after 50, and remember that you have savings potential in workplace retirement plans. If you are 50 or older this in 2018, you can put as much as $24,500 into a 401(k) plan. Some participants in 403(b) or 457(b) plans are also allowed that step-up. And during this time, you can downsize and reduce debts and expenses to effectively give you more retirement money. You can also stay invested longer (see #1 above).2 The bottom line is, don’t give up, and fight the good fight.
  4. “Medicare will take care of my long term care expenses.” Not true, and among the most costly of these myths. Medicare may (this is not guaranteed) pay for up to 100 days of your long-term care expenses. If you need months or years of long-term care and do not own a long term care policy or own a policy and don’t have adequate coverage, you may have to pay for it out of pocket. According to Genworth Financial’s Annual Cost of Care Survey, the average yearly cost of a semi-private room in a nursing home is $235 a day ($85,775 per year).3,4 In Northern California, the cost will likely be higher.
  5. “I should help my kids with college costs.” That’s a nice thought, an expensive idea, and for many not a good idea. Unlike student financial assistance, there is no such program as retiree “financial assistance.” Your student can work, save, and or borrow to pay to cover their cost of college. S/he will have decades to pay loans back. In contrast, you can’t go to the bank and get a “retirement loan.” Moreover, if you outlive your money your kids may end up taking you in and you may be a financial burden to them, which for many is a parent’s worst nightmare. Putting your financial requirements above theirs may be fair and smart as you approach retirement.
  6. “I’ll live on less in retirement.” We all have an image in our minds of a retired couple in their seventies or eighties living modestly, hardly eating out, and relying on senior discounts. In the later phase of retirement, couples often choose to live on less, sometimes out of necessity. However, the initial phase may be a different story. For many, the first few years of retirement mean traveling, new adventures, and “living it up” a little – all of which may mean new retirees may actually “live on more” out of the retirement gate.
  7. “No one really retires anymore.” It may be true that many baby boomers will probably keep working to some degree. Some people love to work and want to work as long as they can. What if you can’t, though? What if your employer shocks you and suddenly lets you go? What if your health does not permit you to work as much as you would like, or even at all? You could retire more abruptly than you believe you will. This is why even people who expect to work into their later years should have a solid retirement plan.

There is no “generic” retirement experience, and therefore, there is no one-size-fits-all retirement plan. Each individual, couple, or family should have a strategy tailored to their particular money situation and life and financial objectives.

If you or someone you know would like to get coaching on the most appropriate approach to planning for retirement, we welcome your call.

#retirementmyths #financialmyths #retirementfail #FinancialBehavior #FinancialPlanning #PersonalAdvice #RetirementIncome  #RetirementPlanning

This material was prepared by MarketingPro, Inc. and does not necessarily represent the views of the presenting party nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 – money.usnews.com/money/retirement/iras/articles/2017-04-03/5-new-taxes-to-watch-out-for-in-retirement [4/3/18]
2 – fool.com/retirement/2017/10/29/what-are-the-maximum-401k-contribution-limits-for.aspx [3/6/18]
3 – medicare.gov/coverage/skilled-nursing-facility-care.html [9/13/18]
4 – fool.com/retirement/2018/05/24/the-1-retirement-expense-were-still-not-preparing.aspx [5/24/18]

For some, the recent tax reforms indicate, yes. For others, not so fast.

By Cornerstone Wealth Management

Can federal income tax rates get lower than they are today? Given the national debt and the outlook for Social Security and Medicare, it is hard to imagine that rates go much lower. In fact, it is more likely that federal income taxes get higher, as the tax cuts created by the 2017 reforms are scheduled to sunset when 2025 ends.

Additionally, the Feds are now using a different yardstick, the “chained Consumer Price Index,” to measure cost-of-living adjustments in the federal tax code. As a result, you could inadvertently find yourself in a higher marginal tax bracket over time, even if tax rates do not change. Due to this, it is possible that today’s tax breaks could eventually be worth less.1

As a result of tax reform, we are occasionally asked if this is a good time to convert a traditional IRA to a Roth. A conversion to a Roth IRA is a taxable event. If the account balance in your IRA is large, the taxable income linked to the conversion could be sizable, and you could end up in a higher tax bracket in the conversion year. For some, that literally may be a small price to pay.2

The jump in your taxable income for such a conversion may be a headache – but like many headaches, is likely to be short-lived. Consider the long term advantages that could come from converting a traditional IRA balance into a Roth IRA. A “big picture” comprehensive financial plan can help you estimate the short and long term merits of this transaction, even before you decide to pull the trigger.

Generally, you can take tax-free withdrawals from a Roth IRA once the Roth IRA has been in existence for five years and you are age 59½ or older. For those who retire well before age 65, tax-free and penalty-free Roth IRA income could be very nice.3

You can also contribute to a Roth IRA regardless of your age, provided you earn income and your income level is not so high as to bar these inflows. In contrast, a traditional IRA does not permit contributions after age 70½ and requires annual withdrawals once you reach that age.2

Lastly, a Roth IRA is can be a good estate planning strategy. If IRS rules are followed, Roth IRA beneficiaries may end up with a tax free inheritance.3

A Roth IRA conversion does not have to be “all or nothing.” Some traditional IRA account holders elect to convert just part of their traditional IRA to a Roth, while others choose to convert the entire balance over multiple years, the better to manage the taxable income stemming from the conversions.2

Important change: you can no longer undo a Roth conversion. The Tax Cuts & Jobs Act did away with Roth “recharacterizations” – that is, turning a Roth IRA back to a traditional one. This do-over is no longer allowed.2

Talk to a tax or financial professional as you explore your decision. While this may seem like a good time to consider a Roth conversion, we have seem working with our clients that this move is not suitable for everyone. Especially during years of high earned income. The resulting tax hit may seem to outweigh the potential long-run advantages.

If you or someone you know would like to get coaching on the most appropriate approach to reviewing Roth strategies, we welcome your call.

#IRA #RothIRA #Roth #RothConversion #FinancialPlanning #Investments #RetirementIncome #RetirementPlanning #Taxes #TaxStrategies #TaxSavings #Cornerstonewmi

This material was prepared by MarketingPro, Inc. and does not necessarily represent the views of the presenting party nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 – money.cnn.com/2017/12/20/pf/taxes/tax-cuts-temporary/index.html [12/20/17]
2 – marketwatch.com/story/how-the-new-tax-law-creates-a-perfect-storm-for-roth-ira-conversions-2018-03-26 [8/17/18]
3 – fidelity.com/building-savings/learn-about-iras/convert-to-roth [8/27/18]

What do you do with sudden money?

Provided by Cornerstone Wealth Management

Imagine getting rich, quick. Liberating? Yes of course. Frustrating and challenging? Most likely.

Sudden money can help you resolve retirement saving or college funding goals, and set the stage for your financial independence. On the downside, you’ll pay higher taxes, attract more attention, and maybe even deal with “wealth envy.” Sudden Money may also include grief or stress if associated to death, divorce, or a employer buy-out.

Sudden Money does not always lead to happy endings. Take the example of Alex and Rhoda Toth, a real-life Florida couple down to their last $25 who hit a lottery jackpot of roughly $13 million in 1990. Their story ended badly: by 2006, they were bankrupt and faced tax fraud charges. Or Illinois resident Janite Lee, who won $18 million in the state lottery. Eight short years later, Janite filed for bankruptcy; had $700 to her name and owed $2.5 million to creditors. Sudden Money doesn’t automatically breed “old money” behavior or success. Without long-range vision, one generation’s wealth may not transfer to the next. Wealth coaching firm The Williams Group spent years studying the estate transfers of more than 2,000 affluent households. It found that 70% of the time, the wealth built by one generation failed to successfully migrate to the next.1,2

What are some wise steps to take when you receive a windfall? What might you do to keep that money in your life and in your family for their future?

Keep quiet, if you can. If you aren’t in the spotlight, don’t step into it. Aside from you and your family, the only other parties that need to know about your financial windfall is the Internal Revenue Service, the financial professionals who you consult or hire, and your attorney. Beyond those people, there isn’t generally an upside to notify anyone else.

What if you can’t keep a low profile? Winning a lottery prize, selling your company, signing a multiyear deal – when your wealth is more in the public domain, expect friends and strangers and their “opportunities” to come knocking at your door. Time to put on your business face: Be fair, firm, and friendly – and avoid handling the requests directly. One well-intended generous handout on your part may risk opening the floodgates to others. Let your financial team review requests for loans, business proposals, and pipe dreams.

Yes, your team. If big money comes your way, you need skilled professionals in your corner – a tax professional, an attorney, and a wealth manager. Ideally, your tax professional is a Certified Public Accountant (CPA) and or Enrolled Agent (EA) and tax advisor, your lawyer is an estate planning attorney, and your wealth manager is “big picture” and pays attention to tax efficiency.

Think in increments. When sudden money enhances your financial standing, you need to think about the immediate future, the near future, and the decades ahead. Many people celebrate their good fortune when they receive sudden wealth and live in the moment, only to wonder years later where that moment went. Many times, it is better to identify what needs immediate attention, and delay anything else until life becomes more stable.

In the short term, an infusion of money may result in tax challenges; it may also require you to reconsider existing beneficiary designations on IRAs, retirement plans, and investment accounts and insurance policies. A will, a trust, an existing estate plan – they may need to be revisited. Resist the immediate temptation to try and grow the newly acquired wealth quickly by investing aggressively.

Looking down the road a few miles, think about what financial independence (or greater financial freedom) means to you. How do you want to spend your time? Do you want to continue working, or change your career? If you own a business, should you stick with it, or sell or transfer ownership? What kinds of near-term possibilities could this mean for you? What are the strategies that could help you defer or reduce taxes long term? How can you manage investment and other financial risks in your life?

Looking further ahead, tax efficiency can potentially make an enormous difference for that windfall. You may end up with considerably more money (or considerably less) decades from now due to asset location and other tax factors.

Important idea: Think about doing nothing for a while. Nothing financially momentous, that is. There’s nothing wrong with that. Sudden, impulsive moves with sudden wealth can backfire.

Welcome the positive financial changes, but don’t change yourself. Remaining true to your morals, ethics, and beliefs will help you stay grounded. Turning to professionals who know how to capably guide that wealth is just as vital.

If you or someone you know would like to get coaching on the most appropriate to sudden money, we welcome your call.

This material was prepared by MarketingPro, Inc. and does not necessarily represent the views of the presenting party nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 – bankrate.com/finance/personal-finance/lottery-winners-who-went-broke-1.aspx#slide=1 [5/23/18]
2 – money.cnn.com/2018/09/10/investing/multi-generation-wealth/index.html [9/10/18]

This article was prepared by a third for information only. It is not intended to provide specific advice or recommendations for any individual.

To find out if this tax applies to you, look closely at two factors.

Provided by Cornerstone Wealth Management

Your Social Security income could be taxed. That may seem unfair or unfathomable. Regardless of how you feel about it, it is a possibility.

Since 1984, Social Security recipients have had to contend with this possibility. Social Security benefits became taxable above a certain yearly income level in that year. Then in 1993, a second, higher yearly income threshold (at which a higher tax rate applies) was added. Unfortunately for today’s recipient, these income thresholds have never been adjusted upward for inflation.1 As a result, more Social Security recipients have been exposed to the tax over time. Today, about 56% of senior households now have some percentage of their Social Security incomes taxed.1

Only part of your Social Security income may be taxable, not all of it. This is good news for some. Two factors come into play here: your filing status and your combined income.

Social Security defines your combined income as the sum of your “adjusted gross income” (AGI), any non-taxable interest earned, and 50% of your Social Security benefit income. (Your combined income is actually a form of “modified AGI,” or MAGI.)2

Single filers with a combined income from $25,000 to $34,000 and joint filers with combined incomes from $32,000 to $44,000 may have up to 50% of their Social Security benefits taxed.2

Single filers whose combined income tops $34,000 and joint filers with combined incomes above $44,000 may see up to 85% of their Social Security benefits taxed.2

If you are a head of household, or a qualifying widow/widower with a dependent child, the combined income thresholds for single filers apply to you.2

What if you are married and file separately? No income threshold applies. Your benefits will likely be taxed no matter how much you earn or how much Social Security you receive. (The only exception is if you are married filing separately and do not live with your spouse at any time during the year. In that case, part of your Social Security benefits may be taxed if your combined income exceeds $25,000.)2

You may be able to estimate these taxes in advance. You can use an online calculator (a Google search will lead you to a few such tools) or the worksheet in I.R.S. Publication 915.2

You can even have these taxes withheld from your Social Security income. You can choose either 7%, 10%, 15%, or 22% withholding per payment. Another alternative is to make estimated tax payments per quarter, like a business owner does.2,3

Did you know that 13 states tax Social Security payments? In alphabetical order, they are: Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, North Dakota, Rhode Island, Utah, Vermont, and West Virginia. It might be a surprise to some that California is not on this list. Sometimes, only higher-income seniors face such taxation. For example, in Kansas, Missouri, and Rhode Island, the respective AGI thresholds for the taxation of a single filer’s Social Security income are $75,000, $80,000, and $85,000.1

If it appears your benefits will be taxed, what can you do? You could explore a few options to try and minimize the tax hit, but keep in mind that if your combined income is far greater than the $34,000 single filer and $44,000 joint filer thresholds, your chances of averting tax on Social Security income are slim. If your combined income is reasonably near the respective upper threshold, though, some moves might help.

If you have a number of income-generating investments, you could opt to try and revise your portfolio so that less income and tax-exempt interest are produced annually. Part of our work with clients is to review this possibility.

As written about in another article, a charitable IRA gift may be a good idea. You can make one if you are 70½ or older in the year of the donation. Individually, you can endow a qualified charity with as much as $100,000 in a single year this way. This idea could have a dual purpose: The amount of the gift counts toward your Required Minimum Distribution (RMD) and will not be counted in your taxable income.4

You could withdraw more retirement income from Roth accounts to lower AGI. Distributions from Roth IRAs and Roth workplace retirement plan accounts are tax exempt as long as you are age 59½ or older and have held the account for at least five tax years.5

Will the income limits linked to taxation of Social Security benefits ever be raised? Retirees can only hope so, but with more baby boomers becoming eligible for Social Security, the I.R.S. and the Treasury stand to receive greater tax revenue with the current limits in place.

If you would like to review options to help manage social security taxes, we welcome your call.

#FinancialPlanning #RetirementIncome  #RetirementPlanning #SocialSecurity #Taxes #TaxStrategies #TaxSavings

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 – fool.com/retirement/2018/08/30/everything-you-need-to-know-about-social-security.aspx [8/30/18]
2 – forbes.com/sites/kellyphillipserb/2018/02/15/do-you-need-to-pay-tax-on-your-social-security-benefits-in-2018 [2/15/18]
3 – cnbc.com/2018/09/12/the-irs-is-warning-retirees-of-this-impending-surprise-tax.html [9/12/18]
4 – fidelity.com/building-savings/learn-about-iras/required-minimum-distributions/qcds [9/17/18]
5 – irs.gov/retirement-plans/retirement-plans-faqs-on-designated-roth-accounts [10/25/17]

You don’t need to be wealthy to make an impact and get a win-win.

Provided by Cornerstone Wealth Management

Do you have to make a multimillion-dollar donations to a charity to earn immediate or future financial benefits? No. If you’re not yet a millionaire or simply a “millionaire next door,” yet want to give, consider the following ideas, which may bring you immediate or future tax deductions.

Partnership gifts. These gifts are made via long-term arrangements between donors and recipient charities or non-profits, usually with income resulting for the donor and an eventual transfer of the principal to the charity at the donor’s death.

For example, a charitable remainder trust (CRT) may be structured to provide a beneficiary (i.e., you) with cash flow for a defined number of years, even for life. After the end of the trust term (or your death), the remaining trust principal passes to charity, or in some cases if your prefer, to a family foundation. Another option: You could even name a CRT as the beneficiary of your IRA as part of your estate planning strategy. In fact, some charities and universities are happy to administer a CRT you create for free if the remaining trust principal is designated for that charity or university’s investment or endowment fund. A charitable lead trust (CLT) makes annual charitable gifts on your behalf, for a set number of years; if structured and executed properly, the trust beneficiaries (i.e., your heirs) can eventually receive the leftover trust assets without having to pay estate or gift taxes on them.1,2

If you don’t have enough funds to start one of these, you might opt to invest some of your assets in a pooled income fund offered by a university or charity. In a pooled income fund, your gifted assets go into a “pool” of assets invested by a fund manager; as a donor, you are assigned “units” in the fund proportionate to your share of the fund’s total assets. In turn, you get a proportionate share of the income of the fund for life, and when your last income beneficiary passes away, the principal of your gift goes to the school or charity.3

If you like the idea of a family foundation, but don’t quite have the money and don’t want the bureaucracy, you could consider setting up a donor-advised fund (DAF). Essentially, this is a charitable savings account. You make an irrevocable contribution to a third-party fund, realizing an immediate tax deduction for the year of the gift; the fund invests the money in an account you create, where it grows without being taxed. You can request where the charitable donations from the DAF go, and you have a say in how you want the funds in the DAF invested, but the DAF makes the actual donations to non-profits and has the legal control over these matters.1,4 Among our clients and in Northern California, there are a number of families where a DAF is an ideal solution short and long term.

Lifetime gifts. These are charitable gifts in which the donor retains no powers or other controls over the gift once it is made. The gift is irrevocable, or in federal tax terms, “complete.” A lifetime gift of this sort is not included in what the Internal Revenue Service calls your Gross Estate. However, taxable gifts are used in calculation of estate tax.5

Lifetime gifts also include outright gifts of cash or appreciated property, such as stocks, business interests, or real estate. Thanks to the 2017 federal tax reforms, you can make outright gifts via cash or check and deduct such donations up to 60% of your income. A gift of appreciated property could bring you an income tax deduction for its fair market value and help you avoid the capital gains tax that would result from the sale of the asset.6,7

Through a partial or whole gift of appreciated property, you can transfer a real estate deed to a school or charity and get around capital gains taxes that may result from a property’s sale. You may receive an immediate charitable income tax deduction for the full fair market value of the gifted property, a deduction which you may apply up to 30% of your adjusted gross income. If you seek a little more control, you could even arrange a retained life estate, in which you transfer the title to your home to a charity or non-profit while retaining the right to live in it as your primary residence for the rest of your life.8

Life insurance policies and IRAs. Donating a paid-up life insurance policy to a university or charity may allow you an immediate charitable deduction for the value of the gift. You can also name a charity as the beneficiary of an IRA; upon your death, the full value of the account will transfer to the charity without being subject to federal estate or income taxes.6

The caveats. Based on current tax law, as your income increases, you may face limits on the amounts of charitable gifts you can deduct. Your charitable deductions for any federal tax year cannot be more than 50% of your adjusted gross income. But if you exceed such limits, the I.R.S. lets you carry forward excess contributions for up to five years.9

Would you like to learn more? Now is as good a time as any to do so. Your charitable gifting can have real impact even if you don’t have a fortune. Keep in mind that your unique circumstances need to be weighed before making any decision. Please consult your financial professional, tax professional, or attorney prior to making any move. If you would like to get coaching on a gifting approach that might work for you, we welcome your call.

LPL Financial Representatives offer access to Trust Services through The Private Trust Company N.A., an affiliate of LPL Financial.