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Guarding Against Identity Theft

Take steps so criminals won’t take vital information from you.

America is enduring a data breach epidemic. The latest annual study of the problem from Javelin Strategy & Research, a leading financial analytics research firm, says that 16.7 million people across the nation were impacted by I.D. theft in 2017 – an all-time high.1

The problem is getting worse – much worse. Last year, 30% of U.S. consumers were alerted about data breaches by firms holding their personal information. In 2016, just 12% of consumers were so affected.1

Social Security numbers were compromised in 35% of I.D. crimes last year; credit card numbers, in 30% of breaches. Account takeovers tripled in 2017. About 1 million smartphone and computer users had phony intermediary accounts established for them at Amazon, PayPal, and other commerce websites.1

Tax time is prime time for identity thieves. They would love to get their hands on your 1040 form, and they would also love to claim a phony refund using your personal information. In 2016, the I.R.S. had spotted 1 million bogus returns; in 2017, the number dropped to 900,000. This spring, initial data suggested even fewer cases of fraud would be identified, but the numbers are still too large.2

E-filing of tax returns is smart; just make sure you use a secure Internet connection. When you e-file, you aren’t putting your Social Security number, address, and income information through the mail. You aren’t leaving Form 1040 on your desk at home (or work) while you get up and get some coffee or go out for a walk. If somehow you just can’t bring yourself to e-file, then think about sending your returns via Certified Mail. Those rough drafts of your returns where you ran the numbers and checked your work? Shred them.

The I.R.S. doesn’t use unsolicited emails to request information from taxpayers. If you get an email claiming to be from the I.R.S. asking for your personal or financial information, report it to your email provider as spam.3

Use secure Wi-Fi. Avoid “coffee housing” your personal information away – never risk disclosing financial information over a public Wi-Fi network. (Broadband is susceptible, too.) It takes little sophistication to do this – just a little freeware.

Sure, a public Wi-Fi network at an airport or coffee house is password-protected – but if the password is posted on a wall or readily disclosed, how protected is it? A favorite hacker trick is to sit idly at a coffee house, library, or airport and set up a Wi-Fi hotspot with a name similar to the legitimate one. Inevitably, people will fall for the ruse, log on, and get hacked.

Look for the “https” & the padlock icon when you visit a website. Not just http, https. When you see that added “s” at the start of the website address, you are looking at a website with active SSL encryption, and you want that. A padlock icon in the address bar confirms an active SSL connection. For really solid security when you browse, you could opt for a VPN (virtual private network) service which encrypts 100% of your browsing traffic.4,5

Check your credit report. Remember, you are entitled to one free credit report per year from each of the big three agencies: Experian, TransUnion, and Equifax. Historically, asking these bureaus to freeze your credit file in case of suspicious activity has cost a fee. Beginning in fall 2018, you will be able to request a freeze from all three at no charge, thanks to a change in federal law.6

Don’t talk to strangers. Broadly speaking, that is very good advice in this era of identity theft. If you get a call or email from someone you don’t recognize – it could tell you that you’ve won a prize; it could claim to be someone from the county clerk’s office, a pension fund, or a public utility – be skeptical. Financially, you could be doing yourself a great favor.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. 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 – cbsnews.com/news/identity-theft-hits-record-high/ [2/6/18]
2 – nextgov.com/cybersecurity/2018/04/irs-stopping-fewer-fraudulent-returns-and-s-good-thing/147305/ [4/9/18]
3 – forbes.com/sites/kellyphillipserb/2018/03/22/irs-warns-on-dirty-dozen-tax-scams/ [3/22/18]
4 – nytimes.com/2018/05/04/technology/personaltech/staying-safer-on-public-networks.html [5/4/18]
5 – cntraveler.com/story/how-to-keep-your-data-safe-while-traveling [6/7/18]
6 – nbcnews.com/business/consumer/credit-freezes-will-soon-be-free-everyone-n883146 [6/14/18]

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Financial Considerations When Buying a Car

Things to think about before heading to a dealership.

Time to buy a car? Short of buying a house, this is one on the most important purchases you will make. It’s also one that you might be making several times through your life, comprising of thousands – sometimes tens of thousands – of dollars.

If you think about it, you can probably imagine other things that you might want to prioritize, ranging from saving for retirement, buying a home, or even some lifestyle purchases, like travel. Not to mention that having more money on hand will likely be handy if you have sudden need of an emergency fund. Thankfully, there are many options for saving money by avoiding spending too much on your next car. Here are some things to think about.

Buying a new car? It may not be the best value; a brand-new car loses roughly 20% of value over the first year and about 10% of that happens the moment you drive it off the lot. Buying used might require more research and test driving, but under the right circumstances, it can be a considerably better value.1

A trade-in might not always favor you. A dealership has to make a profit on the vehicle you are trading in, so you will often receive far less than the Blue Book value. A better value may be to try to sell your vehicle, yourself, directly to another person. If you do attempt a trade-in, avoid any major expenditures on the old car beforehand, like major repairs or even a detailing. Focus on getting the best price for the new car and leave the trade-in for the end of your negotiation.2

Leasing vs. buying. Leasing a car may only be advantageous if you are a business owner and able to leverage the payments as a tax deduction. While you can get a brand-new car every few years, there are many hoops to jump through; you need excellent credit, and there are many potential fees and penalties to consider when leasing, which you don’t face when buying. In many ways, it’s akin to renting a car for a longer period of time, with all of the disadvantages and responsibilities.3

Shop around for interest rates, but consider credit unions. Credit unions tend to have more favorable rates as they are member owned. At the average American bank, the interest rates are 4.5%, according to Bankrate.com. Meanwhile, you can often get rates in the neighborhood of 2.97% through the typical credit union. There are a number of other benefits to credit unions, including being based locally as well as user-friendly practices, such as options to apply to a credit union at the dealership. There are many financing options, though, so make credit unions only part of your research.4

An automobile is a big-ticket purchase. It’s worth taking your time and making sure that you’ve covered your bases in terms of making the most responsible purchase.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. 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 – marketwatch.com/story/8-things-youre-better-off-buying-used-2018-08-02 [8/2/18]

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When to Ignore the Crowd and Shun a Roth IRA

‘Stealth’ taxes and financial aid implications are among the factors savers should consider when switching accounts

The following article is Courtesy of Laura Saunders and The Wall Street Journal, and makes some very good points on why funding a Roth Conversion could have a negative impact to an overall financial plan. For many of our clients who are high income earners, the worse possible time for a Roth Conversion may be when they are in their peak earning years – the same period of time most people think about this for the first time.

To determine if a Roth IRA is the right strategy for you and your family, or perhaps to learn when might be the right time to explore this strategy, feel free to reach out to Cornerstone.

Switching your traditional individual retirement account to a Roth IRA is often a terrific tax strategy—except when it’s a terrible one.

Congress first allowed all owners of traditional IRAs to make full or partial conversions to Roth IRAs in 2010. Since then, savers have done more than one million conversions and switched more than $75 billion from traditional IRAs to Roth accounts. (Source: The Wall Street Journal September 2018)

The benefits of a Roth conversion are manifold. A conversion gets retirement funds into an account that offers both tax-free growth and tax-free withdrawals. In addition, the account owner doesn’t have to take payouts at a certain age.

While traditional IRAs can also grow tax-free, withdrawals are typically taxed at ordinary income rates. Account owners 70½ and older also must take payouts that deplete the account over time.

IRA specialist Ed Slott and Natalie Choate, an attorney in Boston, say that Roth IRAs also yield income that is “invisible” to the federal tax system. So Roth payouts don’t raise reported income in a way that reduces other tax breaks, raises Medicare premiums, or increases the 3.8% levy on net investment income.

Yet both Ms. Choate and Mr. Slott agree that despite their many benefits, Roth conversions aren’t always a good idea. IRA owners who convert must pay tax on the transfer, and the danger is that savers will give up valuable tax deferral without reaping even more valuable tax-free benefits. For tax year 2018 and beyond, the law no longer allows IRA owners to undo Roth conversions.

Savers often flinch at writing checks for Roth conversions, and sometimes there are good reasons not to put pen to paper. Here are some of them.

  • Your tax rate is going down. In general, it doesn’t make sense to do full or partial Roth conversions if your tax rate will be lower when you make withdrawals. This means it’s often best to convert in low-tax-rate years when income dips. For example, a Roth conversion could work well for a young saver who has an IRA or 401(k) and then returns to school, or a worker who has retired but hasn’t started to take IRA payouts that will raise income later.
  • Those who will soon move to a state with lower income taxes should also consider waiting.
  • You can’t pay the taxes from “outside.”  Slott advises IRA owners to forgo a Roth conversion if they don’t have funds outside the account to pay the tax bill. Paying the tax with account assets shrinks the amount that can grow tax-free.
  • You’re worried about losses. If assets lose value after a Roth conversion, the account owner will have paid higher taxes than necessary. Ms. Choate notes that losses in a traditional IRA are shared with Uncle Sam.
  • A conversion will raise “stealth” taxes. Converting to a Roth IRA raises income for that year. So, benefits that exist at lower income levels might lose value as your income increases. Examples include tax breaks for college or the 20% deduction for a pass-through business. Higher income in the year of a conversion could also help trigger the 3.8% tax on net investment income, although the conversion amount isn’t subject to this tax. The threshold for this levy is $200,000 for singles and $250,000 for married couples, filing jointly.
  • You’ll need the IRA assets sooner, not later. Roth conversions often provide their largest benefits when the account can grow untouched for years. If payouts will be taken soon, there’s less reason to convert.
  • You make IRA donations to charity. Owners of traditional IRAs who are 70½ and older can donate up to $100,000 of assets per year from their IRA to one or more charities and have the donations count toward their required payouts. This is often a highly tax-efficient move. But Roth IRA owners don’t benefit from it, so that could be a reason to do a partial rather than full conversion.
  • Financial aid will be affected. Retirement accounts are often excluded from financial-aid calculations, but income isn’t. If the income spike from a Roth conversion would lower a financial-aid award, consider putting it on hold.
  • You’ll have high medical expenses. Under current law, unreimbursed medical expenses are tax deductible above a threshold. For someone who is in a nursing home or has other large medical costs, this write-off can reduce or even wipe out taxable income. If all funds are in a Roth IRA, the deduction is lost.
  • You think Congress will tax Roth IRAs.Many people worry about this, although specialists don’t tend to. They argue that Congress likes the up-front revenue that Roth IRAs and Roth conversions provide and is more likely to restrict the current deduction for traditional IRAs and 401(k)s—as was considered last year.

Other proposals to limit the size of IRAs and 401(k)s to about $3.4 million, to make non-spouse heirs of traditional IRAs withdraw the funds within five years, and to require payouts from Roth IRAs at age 70½ also haven’t gotten traction so far.

Withdrawals from a Roth IRA may be tax free, as long as they are considered qualified. Limitations and restrictions may apply. Withdrawals prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Future tax laws can change at any time and may impact the benefits of Roth IRAs. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.

 

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Test Your Smarts on Insurance

How much do you know about insurance? Take this WSJ quiz, courtesy of wsj.com

For many consumers, insurance is a confusing maze of possibilities.

There are myriad kinds of policies available, including life, auto, homeowners, health, disability, flood and even pet insurance, that could be appropriate for people, depending on their circumstances and where they live. But many consumers don’t fully understand what each of these policies covers, and they may struggle to find the information they need to make informed decisions.

Insurance professionals recommend consumers review their policies and coverage options yearly to ensure they are properly protected. How much do you really know about insurance?

Take our quiz to find out.

  1. True or false: All disasters are covered under standard homeowners and renters insurance policies.

ANSWER: False. Standard homeowners policies typically cover damages from some potential disasters, including tornadoes, lightning strikes and winter storms, according to the Insurance Information Institute, which helps educate consumers on insurance-related issues. These policies can vary, so read the fine print. What’s more, standard homeowners policies generally don’t cover damages from disasters such as floods, earthquakes or sewer backups; separate endorsements or policies may be needed to protect against these types of problems, according to the institute.

  1. If a policy has a $500 deductible, and the insurance company determines that the insured loss is worth $10,000, the claimant would receive a check for ____________.
  1. $10,500
  2. $9,500
  3. $15,000
  4. None of the above

ANSWER: B. $9,500. The dollar amount of a deductible comes off the top of the claim payment. Deductibles can be specific dollar amounts or percentages, as is generally the case with homeowners insurance. With an auto-insurance or homeowners policy, the deductible applies each time you file a claim. One exception to this is in Florida, where homeowners policies usually require consumers to pay only one hurricane deductible per calendar year, rather than after each storm.

  1. When thinking about the amount of coverage to place on personal possessions, a good rule of thumb is to insure them at ___% to ___% of a person’s dwelling coverage amount.
  1. 10% to 15%
  2. 20% to 30%
  3. 50% to 70%
  4. None of the above

ANSWER: C. Most homeowners-insurance policies provide coverage for personal possessions at about 50%-70% of the insurance on the person’s dwelling, according to the Insurance Information Institute. So, if a person insures a dwelling for up to $150,000, he or she would want to insure personal possessions for at least $75,000.

  1. Usage-based insurance is _______________.
  1. A new type of biometric device.
  2. A type of vehicle insurance where premiums can depend on driving habits such as speed, miles driven and hard-braking incidents.
  3. A policy based on your life expectancy.
  4. A way of measuring how much your personal property is worth.

ANSWER: B. Usage-based insurance, also known as telematics, tracks driving behavior through devices installed in a vehicle or through smartphones. Wireless devices transmit data in real time to insurers, which use the information to help set premiums. The devices record metrics such as the number of miles driven, time of day, where the vehicle is driven, rapid acceleration, hard braking, hard cornering and air-bag deployment. By year-end, 80% of new cars for sale in the U.S. could be equipped with onboard telematics devices, and by 2020, 70% of all auto insurers will use telematics, the National Association of Insurance Commissioners predicts.

  1. Some ___% of households didn’t have life insurance in 2016, according to Limra, an industry-funded research firm.
  1. 5%
  2. 10%
  3. 20%
  4. 30%

ANSWER: D. 30%. The good news is that more households seem to recognize the need for life insurance. Nearly five million more U.S. households had life insurance coverage in 2016 than in 2010, according to the most recent data available from Limra.

  1. When choosing an insurance company, consumers should consider _____________________________.
  1. Whether the insurance company is licensed in their state.
  2. The cost of the insurance policy.
  3. The financial strength of the insurer.
  4. All of the above.

ANSWER: D. There were nearly 6,000 insurance companies to choose from in the U.S. in 2016, according to the National Association of Insurance Commissioners, so consumers should do their homework before choosing one. A good place to start is with their state insurance department, which can help identify which insurers are licensed to do business in the state. The department may even publish a guide that shows what insurers charge for different policies. Independent credit-rating firms—such as A.M. Best, Fitch, Kroll Bond Rating Agency (KBRA), Moody’s and S&P Global Ratings—are another source of information. They rate insurers’ financial strength, which can be an important indicator of whether a firm will have the assets and liquidity to pay claims as promised. Consumers should also gauge the level of service insurers are providing and their comfort level with the company’s representatives.

  1. True or false: While not required, business-interruption insurance is a good idea for entrepreneurs and startups.

ANSWER: True. After a catastrophe or disaster, about 40% of businesses don’t reopen and an additional 25% fail within a year, according to data from FEMA and the U.S. Small Business Administration. Business-interruption insurance can help compensate small-business owners for lost revenue due to closure. This type of insurance can also help owners cover the cost of fixed expenses such as rent and utilities, as well as mitigate the expense of operating from a temporary location.

  1. True or false: People who don’t have health insurance in 2018 will still face a penalty when they file their taxes in early 2019.

ANSWER: True. While the penalty under the Affordable Care Act for not having health insurance has been repealed, the change doesn’t take effect until 2019, according to Louise Norris, a health-insurance broker who has been writing about health insurance and health-law overhaul since 2006. People who are uninsured in 2019 and beyond won’t be subject to a penalty, she says.

 

 

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The Snowball Effect

Save and invest, year after year, to put the full power of compounding on your side.

Have you been saving for retirement for a decade or more? if so, something terrific may likely happen with your IRA or your workplace retirement plan account in the foreseeable future. At some point, its yearly earnings should begin to exceed your yearly contributions.

Just when could this happen? The timing depends on several factors, and the biggest factor may simply be consistency – your ability to keep steadily investing and saving. The potential for this phenomenon is apparent for savers who start early and savers who start late. Here are two mock scenarios.

Christina starts saving for retirement at age 23. After college, she takes a job paying $45,000 a year. Each month, she directs 10% of her salary ($375) into a workplace retirement plan account. The investments in that account earn 6% per year. Thirteen years later, Christina is still happily working at the same firm and still regularly putting 10% of her pay into the retirement plan each month. She now earns $58,200 a year, so her monthly 10% contribution has risen over the years from $375 to $485.1

The ratio of account contributions to account earnings has tilted during this time. After eight years of saving and investing, the ratio is about 2:1 – for every two dollars going into the account, a dollar is being earned by its investments. During year 13, the ratio hits 1:1 – the account starts to return more than $500 per month, with a big assist from compound interest. In years thereafter, the 6% return the investments realize each year tops her year’s worth of contributions to the principal. (Her monthly contributions have grown by more than 20% during these 13 years, and that also has had an influence.)1

Fast forward to 35 years later. Christina is now 58 and nearing retirement age, and she earns $86,400 annually, meaning her 10% monthly salary deferral has nearly doubled over the years from the initial $375 to $720. This has helped her build savings, but not as much as the compounding on her side. At 58, her account earns about $2,900 per month at a 6% rate of return – more than four times her monthly account contribution.1

Lori needs to start saving for retirement at age 49. Pragmatic, she begins putting $1,000 a month into a workplace retirement plan. Her account returns 7% a year. (For this example, we will assume Lori maintains her sizable monthly contribution rate for the duration of the account.) By age 54, thanks to compound interest, she has $73,839 in her account. After a decade of contributing $12,000 per year, she has $177,403. She manages to work until age 69, and after 20 years, the account holds $526,382.2

These examples omit some possible negatives – and some possible positives. They do not factor in a prolonged absence from the workforce or bad years for the market. Then again, the 6% and 7% consistent returns used above also disregard the chance of the market having great years.

Repeatedly, investors are cautioned that past performance is no guarantee or indicator of future success. This is true. It is also true that the yearly total return of the S&P 500 (that is, dividends included) averaged 10.2% from 1917-2017. Just stop and consider that 10.2% average total return in view of all the market cycles Wall Street went through in those 100 years.2

Keep in mind, when the yearly earnings of your IRA or employer-sponsored retirement plan account do start to exceed your yearly contributions, it is still prudent to continue making them. You should keep the momentum of your savings effort going to maintain your compounding potential.

These are a hypothetical examples and are not representative of any specific situation. Your results will vary. The hypothetical rates of return used do not reflect the deduction of fees and charges inherent to investing.

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 – time.com/money/5204859/retirement-investments-savings-compounding/ [3/21/18]
2 – fool.com/investing/2018/05/16/how-to-invest-1000-a-month.aspx [5/16/18]

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Financial Steps to Take Before a Divorce

Wise moves to make before things are finalized.

Before your divorce goes through, it will be wise to check up on financial matters. It will be better to assess the state of your financial life before the split rather than after.

Find out where you stand financially. Beyond your salary and your bank accounts, how much do you have in the way of retirement savings? What will your monthly income be? What investments do you hold? Will you retain ownership of any real estate, and assume the mortgage payments yourself? Will you be selling any assets or ownership interests?

You should document everything about your personal finances. Everything you can think of. Whether you scan it or copy it, you should have as complete a picture of your financial life as possible.

The picture of your financial life should also detail your credit & insurance. Do you know your credit score? Today, a good credit score is considered anything north of 690. If you have a score in the mid-600s, you have fair credit. Below 630, you have poor credit.1

Track your credit before & after your divorce. There are three major credit reporting agencies that assign you credit ratings: Equifax, TransUnion, and Experian. Through Credit.com, you can see two of these three credit scores for free, updated each month. You may also request a copy of your credit report every 12 months from the three reporting agencies; you are entitled to it, by law. Ask all three for such a report, if you haven’t already. If your ex-spouse attempts to add some unauthorized debt in your name, this is one way to know about it.1

Do you have your own health insurance? If so, how much do you pay for it per month? If not, you may have a challenge to secure it – hopefully, your health or employment situation allows you to get coverage without many obstacles. Apart from health coverage, other types of insurance have no doubt protected other people and important items in your household. Who owns these policies? The beneficiary designations on the policies will undoubtedly need to change.

What should you do about taxes? If you are divorcing after April, should you and your spouse file one more joint return? This calls for a chat with your tax professional. Filing jointly could of course save you money compared to filing singly, but it also means you are jointly responsible for everything on that 1040 form.

If you remain legally married and living with each other when a calendar year ends, the two of you must file your federal tax return for that year as a married couple – your filing status will either be married filing jointly or married filing separately. If you think you will receive a refund, you and your former spouse will have to communicate to see how it will be divided – the IRS does not allocate refunds to divorced spouses by any kind of formula.2

If you will have primary custody of your children, the IRS expects that you will claim the exemption for dependent children on your 1040 form. If you have multiple children, it is allowable for you and your former spouse to divide the per-child exemptions as you see fit. If you paid some or all of the medical expenses for one of your children, you can deduct those expenses even if your ex-spouse has primary custody of that child.2

Most importantly, assess what your financial potential will be after the divorce. An “equal” settlement is not always an equitable one, as one spouse may be left with much greater potential to build and retain wealth than the other. That is the most important long-term issue to address, and it should be addressed well before a divorce is finalized.

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 – ajc.com/feed/business/personal-finance/the-important-financial-lesson-you-wont-learn-in/fCRRNr/ [8/21/16]
2 – irs.com/articles/filing-your-taxes-after-divorce [9/15/16]

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Should You Leave Your IRA to a Child?

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

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

IRA owners who name minors as beneficiaries may have good intentions. Their goal may be to “stretch” a large Roth or traditional IRA. Distributions from the inherited IRA can be scheduled over the (long) expected lifetime of the young beneficiary.

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

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

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

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

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

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

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

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

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

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

One last note: if you want to leave your IRA to a minor, check to see if the brokerage holding your IRA allows a child or a grandchild as an IRA beneficiary. Some brokerages do, while others do not.1   Due to the complex nature of a trust creation, you should seek the counsel of a legal professional.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. 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 – investopedia.com/articles/retirement/09/minor-as-ira-beneficiary.asp [6/19/18]
2 – kiplinger.com/article/retirement/T021-C000-S004-pass-an-ira-to-young-grandkids-with-care.html [5/17]
3 – forbes.com/sites/ashleaebeling/2018/05/08/the-kiddie-tax-grows-up/ [5/8/18]
4 – tinyurl.com/y7bonwzx [5/31/18]
5 – forbes.com/sites/kellyphillipserb/2018/03/07/new-irs-announces-2018-tax-rates-standard-deductions-exemption-amounts-and-more/ [3/7/18]

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What Determines Car Insurance Rates?

Driver history is just one factor; there are many others.

Your auto insurance payment is not just based on your driving history. Assorted variables come into play that have nothing to do with your accident record or your experience behind the wheel.

Where you live counts. If you reside in a congested big-city neighborhood with an unyielding traffic stream, that could push your premium higher. Certainly, the accident threat is greater there than in a rural area. In addition, high-density neighborhoods may see more vandalism, break-ins, and auto theft than lower-density communities – plus, more car insurance fraud schemes.1

The vehicle you drive factors into the calculation. Yes, a luxury car will commonly cost more to insure than an economy car, but vehicle price is not the only factor. Certain makes and models are stolen more than others: the Honda Civic, the Nissan Altima, and the Toyota Camry are prime targets for auto thieves. If you drive a 4×4 SUV, the insurer may factor in some off-road use, even if you just want to drive it to work, the beach, and the mall. Engine horsepower could also affect your rates.2

If you own a home, your auto insurance premium might be less than that of a renter. Renters are perceived to have more trouble with their household finances than homeowners. Whether this is true or not, the status of being a homeowner is a positive element in auto insurance rate calculation.2

Are you married? That is a plus when it comes to auto insurance rates, because some insurers think married people lead less risky lives than single people. This belief was reinforced back in 2004, when the National Institutes of Health released a study that concluded that single people were twice as likely as married people to get into car accidents. Like it or not, this presumption affects rates.1,2

If you are an older male, your rates might be the lowest. A Consumer Federation of America white paper looked at the rates set by some companies and found that older men (at least in ten cities) paid less than older women. On the other hand, younger men are thought to be the most reckless drivers (and drivers from that demographic are most often the drivers in fatal wrecks).1

Bad credit can mean higher premiums. It can elevate premiums even more than an accident in some states. In three states, this does not apply: California, Hawaii, and Massachusetts. All three bar insurance carriers from hiking auto insurance rates due to personal credit histories.1

Your job (and how you commute to work) may matter. In its 2018 State of Auto Insurance Report, car insurance comparison website The Zebra says that the typical, full-time worker will save about $30 in car insurance costs compared to a part-time worker. Active duty military and veterans tend to pay around $50 less than civilians. If you work from home, that is a positive factor. If you drive a long way to and from work, that is a negative factor. If you commute during peak hours or between 12:00-2:00am, that is another negative factor.2

Insurers run these variables through their own refined algorithms. This is another reason car insurance rates vary so much from carrier to carrier. Compare and contrast and shop around, for one company may give more weight to some factors than others – and the savings found through thorough shopping could be significant.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. 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 – nerdwallet.com/article/5-surprising-factors-inflate-car-insurance-rate [1/8/18]
2 – wisebread.com/7-things-that-affect-your-car-insurance-rates [5/10/18]

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Why community college may be a student’s first and best path to her/his career

As my own family goes through our second and final iteration of the college search, majors, careers, and the rest, I continue to come across some very interesting information advocating the merits of community college.

My family lives in a hyper-competitive high school district, one of the best in the state of California. And yet, according to the high schools own placement records, almost 50% of these students will start post high school education in community college.

Most high school seniors don’t want to entertain this path. But numbers don’t lie.

I thought you might enjoy two resources I have come across that make the point that community college could be . The first is a link to a video titled Success in the New Economy. This is an interesting 9 minute video on the merits of community college. And why community college may be the best option for students seeking meaningful, higher-earning careers.

The second is the article below by Associated Press. I hope this perspective opens a few ideas for someone you know.

Big changes coming to key community colleges

By Dan Walters, Associated Press

California’s 114 community colleges are the Rodney Dangerfields of higher education, overshadowed by the state’s four-year universities and not getting much respect.

That’s true even though the community colleges’ 2.1 million full- and part-time students are more than three times the combined enrollments of the University of California and the California State University systems.

More importantly, low-cost, conveniently located community colleges are the primary gateway into post-high school job training and four-year degrees for those who would otherwise be stuck on the lower rungs of the socioeconomic ladder. Some big changes are coming to the system; some of them from Gov. Jerry Brown, who began his political career a half-century ago as a community college trustee in Los Angeles and will end it this year.

Under his prodding, the Legislature has approved a new state-operated online community college that he says will give workers displaced by technology or other circumstances new opportunities to acquire marketable skills.

“I want people to be able to open their own imaginations whether they are 15 or 50. Now (students) have a real opportunity to not only learn but to get a certificate and get skills to earn more money, advance and pursue their dreams,” Brown told the state community college board after signing legislation for the online college.

Brown and the Legislature are also overhauling how the colleges are financed, giving them more state aid but conditioning some money on how well colleges are preparing students for jobs or transfer to four-year institutions.

It’s meant to be a carrot to encourage better performances by local colleges, who previously had been given allocations based on enrollment, but it’s also something of an anomaly.

The governor has stoutly resisted performance measures for K-12 schools, even for his program of directing more state aid to help poor and “English-learner” students raise their academic skills.

He calls that reluctance “subsidiarity,” meaning trusting local education officials to do the right thing, and has rejected pleas of education reformers for more accountability.

It’s a little odd that he would reject such accountability for K-12 schools but insist on it for community colleges.

Still another Brown-backed change is called “California College Promise.” Participating community colleges may provide financial incentives and guaranteed transfers to four-year colleges for community college students meeting certain criteria. The program also envisions community colleges partnering with K-12 schools to improve college preparation.

Brown, however, is not the only source of change for the community colleges.

This month, the state community college board approved an agreement that allows students who have completed required lower-division work in some majors to transfer as juniors to private, nonprofit colleges and universities. While students have sought such transfers in the past, the new agreement provides a more direct pathway for admission.

But perhaps the biggest change coming, albeit slowly, to the state’s community colleges is allowing some of them to offer four-year “baccalaureate” degrees in some fields.

Nine community colleges awarded 135 such degrees this year under a pilot program, involving such fields as dental hygiene, mortuary science and ranch management.

The state Senate has passed a bill to extend the pilot program, but it faces stiff opposition from faculty unions and the Assembly has killed extension legislation in the past.

California has a looming shortage of college-educated workers and if the gap is to be closed, community colleges must be full partners and not merely academic stepchildren.

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Role of tending to family members typically falls to women

65 percent of older adults rely on family and friends for long-term care needs”

As parents reach their golden years, many need their adult children’s help for daily living or for simple tasks like rides to doctor’s appointments and going to the grocery store or more intense care such as dressing, bathing and administering medication.

According to the Family Caregiver Alliance, 65 percent of older adults rely on family and friends for long-term care needs with 30 percent supplementing family care with paid providers. These informal providers give nearly $500 billion in valued services. A majority of the time — an estimated 66 percent — the caretaking tasks fall to women who give at least 20 hours of unpaid care on average while also balancing their own families and working outside the home.

When folks are giving so much of themselves to others, caregivers often suffer burnout from physical, mental and emotional exhaustion, including anxiety, stress and depression. “You have to make sure that you are not overextending yourself,” said Tammy Bresnahan, AARP’s associate state director for advocacy. “… That is why we recommend that you find breathing exercises and/or yoga or try to carve out a little bit of time for yourself so you are not all consumed.”

She suggests siblings may want to split up duties if possible, such as one takes the parent to doctor’s appointments while the other does home visits.

Elizabeth Weglein, CEO of the Elizabeth Cooney Care Network, believes it is important for caregivers to take time for themselves.

“If you are able to take care of yourself, you can take better care of someone else,” she said. “Most caregivers put themselves at the bottom row and take care of themselves last. Their health deteriorates fairly quickly. So really the mantra should be always take care of yourself.”

The advice is similar to the scenario you hear before an airplane flight from attendants who instruct caregivers, in the case of an emergency, to put on their oxygen masks first before helping their loved ones.

“Caregivers don’t always realize it when they are in the midst of it,” Weglein said. “They need to be taking care of themselves, getting time off. Even just going to the grocery store alone or going to get their hair done or seeing a friend and having lunch. Just having some downtime to talk. The value of that break is so high.”

One of the biggest needs for caregivers is respite care. Some caregivers need to attend out-of-town funerals or important events. Others need to have surgery or be in a medical facility for a short time.

Maryland is one of 16 states that utilizes a federal grant to provide emergency respite care services within 72 hours, allotting families $225 a year for services. Beginning in fall 2017, the Elizabeth Cooney Care Network serves as administrator.

“The individuals who have utilized (the grant) were very thankful,” Weglein said. “They really did not have any resources to turn if it had not been for the grant. …The good part is it doesn’t have a lot of strings. There is no economic requirement. They just have to have a need. It is supporting respite care which means it is helping the primary caregiver.”

Weglein believes the grant is unique because it can be triggered so quickly and families may call themselves.

“In Maryland, there are a lot of gatekeepers where you have to call this entity, get prequalified and then call,” Weglein said. “This particular grant was really designed to be very free and accessible that a family caregiver could just call Elizabeth Cooney 24 hours a day, trigger the grant and then services would be rendered within a 72-hour period for the total of $225. We’ve been very creative with that $225 to create support systems that really maximize the need for that individual.”

The Maryland Healthy Families Working Act, which took effect in February, also helps caregivers. The bill, vetoed by Gov. Larry Hogan but overridden by the Maryland General Assembly, requires employers with 15 or more employees to provide paid sick/safe leave for up to five days. Before the act, some fields, such as retail and food service, had no paid sick/safe leave.

“There is some fear from some businesses that it is going to hurt the business,” Weglein said. “… My perspective on how we treat our employees and also how we treat our clients (is) you support your team. The stronger and happier and healthier your team is, the stronger your company is.”

Weglein notes the better we understand taking care of our own families, especially with the aging population, the better we will be as a society in the state.

“Overall, financially, if we keep and take care of our citizens, it is really a matter of keeping our economic base strong so people don’t move to Delaware,” Weglein said. “They don’t move to Florida or North Carolina. They don’t look and seek other pathways to get care.”

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