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Financial Education

Our advisors share their insights and experience on a wide range of financial topics.

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Financial Escape Velocity

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By Jasen M. Gilbert, CFP®

The year 2019 marked the 50th anniversary of the Apollo 11 mission and landing on the moon – one of the greatest accomplishments for the US in space history. This was a successful culmination of many years of research, testing, and many earlier missions that laid the groundwork for Neil Armstrong and Buzz Aldrin to make the “giant leap for mankind.” In order to accomplish space exploration, we had to achieve Escape Velocity of the Earth which is approximately 33 times the speed of sound­­. In other words, a tremendous amount of energy is needed to overcome the Earth’s gravitational force. 

How does this relate to retirement planning? You may have saved and worked all of your life to put away enough money and get to a point where you are financially independent. This may have included raising a family, putting kids through college, developing or building a business, or possibly a long career climbing the executive ladder. Along the way you have developed a significant nest egg – maybe through disciplined savings, maxing out your retirement plans each year, saving additional funds into non-retirement accounts. Whatever path you took, you finally reached financial escape velocity, a point where you are now financially independent and confident to take the plunge into the next chapter.

You finally get to retirement or the next chapter and you are faced with a multitude of challenges – issues or situations that you have not been faced with during your working years, some very difficult to plan for, which challenge your financial escape velocity. Situations may include:

Financially Assisting Adult Children 

Through childhood and adolescence, it’s a parent’s duty to provide support for children by helping them mature and grown into adults who will, in turn, support themselves. However, some children may struggle more than others to find their footing. The instinct to shelter and protect your children is one that really never leaves a parent, even once they have reached the age of adulthood. Many parents may continue to attempt to protect them from financial hardship. An occasional helping hand may be ok, but continually shouldering expenses could cause detriment to your retirement plans. 

Parents who find themselves in a difficult spot where they are spending significant funds might be unwilling to confront their children in fear of damaging the relationship. This may be a good point to bring in your financial advisor to help mediate and facilitate discussions with your children to advance them toward a place of their own financial independence.

Unforeseen Medical Needs

High medical costs are a concern for most retirees, and it’s a reasonable concern. According to the Employee Benefit Research Institute (EBRI), a 65-year-old couple with median prescription-drug expenses who retire this year will need $295,000 to enjoy a 75 percent chance of being able to pay all their remaining lifetime medical bills, and $360,000 to have a 90 percent chance. Those figures factor in the premiums for Medigap and Medicare Part D outpatient drug benefits to supplement basic Medicare but do not include the cost of long-term care facilities or additional insurance plans. 

A sudden illness, accident, or the need to move into a long-term care facility earlier than expected could quickly dwindle down savings. Even a simple surgery could cost tens of thousands of dollars. Pre-retirees may want to look at their own family health history to gauge an idea of conditions they may want to financially prepare for. For those who qualify, a Health Savings Account (HSA) could help future retirees build a nice healthcare nest egg. 

Longevity 

People are living increasingly longer lives. Babies born today are likely to live longer than ever before. Living longer may have many advantages: more time to spend with loved ones, to travel, achieve your hopes and dreams. However, additional years may require you to rethink your retirement considerations and expectations. 

One major hurdle may be the cost. The percentage of people in defined benefits plans or pensions has declined, leaving a population with less longevity protection. The low-interest-rate environment also means that “safer” (lower-risk) investments may not offer high enough returns for investors. Individuals may want to have allocations for various retirement goals such as basic living expenses, healthcare/long-term planning, enjoyment, charitable giving, and bequests. Retirees may also need to consider “rebalancing” their life verses their portfolios. How will you spend the extra time? Will you stay where you are, or move closer to your family? How will you and your spouse adjust to the additional time spent together? 

Market Volatility 

Unless you have a good crystal ball lying around, there is really no way to perfectly predict every dip or change in the market. There is typically some level of risk in every investment, whether monetary or otherwise. However, once you have surpassed your working years, and begin pulling from your nest egg instead of contributing to it, market corrections may seem to hold a greater risk to financial stability. 

Retirement planning should ideally be about the long journey, including market fluctuations. A diversified portfolio may help to minimize the impact of a market downturn. A proper tax preparation strategy could also help you reduce the tax hit that could accompany future interest rate changes. 

As we start out the New Year and new decade there is never a better time to take a look at your financial plan and ensure that it is up to date and provides you and your Family with “Escape Velocity” to get you where you want to be.

Please join us for our CAS Wealth Symposium on February 5th where we will be talking about some key topics relating to maintaining financial wellness. 

Investment advisory services offered through Ciccarelli Advisory Services, Inc., a registered investment adviser independent of FSC Securities Corporation.  Securities and additional investment advisory services offered through FSC Securities Corporation, member FINRA/SIPC and a registered investment adviser. 9601 Tamiami Trail North, Naples, FL. 239-262-6577.

Year-End Tax Planning Ideas to Generate Potential Tax Savings

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By Lynn A. Ferraina

Maximizing Your Retirement Savings for This Year 

You can contribute up to $19,000 to your employer 401(k), 403(b), or Federal Thrift Savings Plan for 2019 plus $6000 in catch up contributions if you are age 50 or older. Pre-tax contributions will lower your take-home pay and could reduce your tax bill. If your employer offers a Roth 401(k), you can make contributions that won’t lower your taxable income but can be withdrawn in retirement tax-free. If you are self-employed or have freelance income, consider a Solo 401k plan. It must be opened by 12/31, but it can be funded up to April 15, 2020. You can contribute up to $19,000 ($25,000 if you are 50 or older) minus any contributions you’ve made to a 9-5 employer’s 401(k) plan for the year. As a self-employed individual, you can make employee and employer contributions up to 20 percent. You can contribute up to 20 percent of your net self-employment income to the plan. Contributions to the Solo 401(k) can total $56,000 in 2019 (or $62,000 if 50 or older), but they cannot exceed your self-employment income for the year.

Another option is to open a Simplified Employee Pension (SEP account). However, if you have a small amount of freelance income, you can contribute more to a solo 401(k). SEP contributions are limited to 20 percent of net self-employment income, up to $56,000.

Transfer IRA Funds to Charity 

Taxpayers who are 70 ½ or older can transfer up to $100,000 from a Traditional IRA tax-free to charity as long as the funds transfer directly to the charity. This is called a “qualified charitable distribution”. The distribution can count as your required minimum distribution without being added to your adjusted gross income. This could be advantageous if you are taking the standard deduction instead of itemizing. The transfer to charity could also help keep your income below the threshold at which you are subject to Medicare high-income surcharges as well as limit the percentage of your social security benefits subject to tax. Make your QCD well in advance of year-end because the money has to be out of your IRA and the check cashed through the charity by 12/31.

Offset Capital Gains 

Reviewing capital gains to losses is a standard practice to help reduce taxes but with 2019 being an exceptional stock market growth year it may be harder to find losses to offset gains. If you are in the 22 percent or higher tax bracket, tax-loss harvesting may make sense. You can harvest losses in excess of gains. Losses not used in 2019 can be carried forward indefinitely for federal tax purposes.

There is a long term capital gains tax rate of 0 percent in the two lowest (10 and 12 percent) marginal tax brackets. If your projected taxable income is less than $39,475 for single filers and $78,950 for married filing jointly you may want to recognize long term gains, which could be taxed at a 0 percent Federal tax rate. Check with your tax accountant for your specific tax planning situation.  

Consider Your Tax Deduction Options

Review your itemized deductions, as results for the 2018 tax filing season indicated the number of taxpayers itemizing was greatly decreased because the state and local taxes (SALT) had been limited to $10,000 for married and single filers. To itemize, you have to exceed the standard deduction, which is $12,200 for a single filer and $24,400 for married filing jointly. Given this significant change, the key to itemizing could be charitable contributions. Consider gifting appreciated securities instead of cash to charity. An example could be gifting a stock with a current value of $5,000 that you paid $1,000 to purchase. This could save $952 in tax ($4,000 x 23.8 percent). Plus, you still receive a charitable contribution deduction. The top marginal tax bracket’s federal long term capital gains rate is 23.8 percent.

As with all financial planning decisions, contact your CAS Advisor to help you work through your choices. 

Investment advisory services offered through Ciccarelli Advisory Services, Inc., a registered investment adviser independent of FSC Securities Corporation.  Securities and additional investment advisory services offered through FSC Securities Corporation, member FINRA/SIPC and a registered investment adviser. 9601 Tamiami Trail North, Naples, FL. 239-262-6577.

The Potential Consequences of High Student Loan Debt

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By Kay Anderson, CFP®

As we head into summer, a new class of students is throwing on a cap and gown and leaving high school for the last time.  It is an exciting time as many of these graduates embark on their next adventures as college undergraduates.  Aside from the financial benefits, a college degree can provide highly valuable skills with a lifetime of benefits and is often critical to success in today’s workforce.

The obstacle many students face is the high-cost of education. According to the Federal Reserve, the national student loan debt reached $1.5 trillion, doubling in the last decade. In 2018, 69 percent of students took out loans, graduating with an average debt of $26,800 with interest rates between 5.00 – 7.4%. 

Student loan debt can create many long term difficulties for both students and their families.  At one point, a college degree allowed graduates to earn gainful employment, an income of their own, and living arrangements independent of their family. Today, many students graduate with a 30 year loan with payments above the cost of their rent. Many graduates have to rely on their families for housing and support even after finding employment. In certain areas of the country, such as New York City and Miami, as many as 45 percent of post-graduates have to move back in with their parents.

On the other side of the spectrum, the debt could prevent many individuals from being able to care for aging family members. Baby Boomers and older Generation X make up the largest portion of today’s potential care recipients. They are also the parents and grandparents of one of the most indebted generations. Over the next 10-15 years, the rate of potential care recipients is expected to rise to 84 percent. The rate of available caregivers is only expected to be 13 percent. For many, there comes a point where children may need to provide more care for their parents. However, the pressure of paying off staggering student loan interest and fees could create an obstacle when trying to provide care. 

No one enjoys paying a large bill, but at least there is no physical harm, right? It turns out there could be. A study by Northwestern University linked high student debt to high blood pressure and metabolic problems as well as poor overall mental and physical health. The stress and financial strain from trying to keep up with payments could lead many to develop poor sleep patterns, dietary choices, and self-care habits. These factors combined could lead to serious health problems such as Type II Diabetes, heart disease, some cancers, and depression.

Money often becomes a point of contention at some point in many relationships. Starting out a marriage with substantial debt, whether it is one or both partners with the debt, can make planning for the future difficult. A lack of disposable income could prevent couples from saving for a home or retirement.  A recent survey conducted by Student Loan Hero discovered that 13 percent of divorcees blame student loans specifically for ending their relationship. With the rate of student loan debt continuing to climb, it is possible more relationships will be affected.

Despite its high cost, a college degree has been shown to be one of the most effective ways to increase wage earning potential.  The Chronicle of Higher Education estimates an earnings gap of more than $32,000 per year between peers who earn a bachelor’s degree and those with only a high school diploma. This could result in a lifetime total income of nearly $1.4 million more than a non-degreed individual.

Parents and grandparents may consider alleviating some of the financial burden by establishing a 529 college savings plan when children are young. These tax-advantaged savings accounts grow tax free when used for any qualified education expenses including tuition, room & board, books, computer and supplies.   The plan can be created with a minimal investment of $250 and once established, any family member or friend can contribute. An individual may gift up to $15,000/year ($30,000 annually for married couples) without gift tax consequences.  

A special exception applies to 529 plans. The “five-year rule” allows for a one-time, lump-sum contribution of five years’ worth of annual exclusions. As of 2019, an individual may contribute up to $75,000 ($150,000 for married couples).  A gift tax return is required to be filed for informational purposes.

Personal time, attention, and love are the greatest gifts that you can give any child, grandchild, or family member. However, should you be in a position to generously help to reduce the financial impact on the future goals of a loved one, there can be no greater gift than the opportunity for them to achieve a great education….it is a gift that keeps on giving!

Consider your options, plan well in advance of the need, and contact your advisor to provide details on how you may begin funding a 529 plan.

 Sources:

Student Loan Averages

https://www.federalreserve.gov/releases/g19/current/default.htm
https://studentloanhero.com/student-loan-debt-statistics/

College Degree Statistics

https://www.chicagotribune.com/suburbs/post-tribune/opinion/ct-ptb-heckler-guest-column-st-0912-story.html

College Students Moving in With Parents

https://www.marketwatch.com/story/more-recent-graduates-are-living-at-home-than-ever-before-2018-05-08

Rate of Caregivers

https://www.wsj.com/articles/the-call-to-care-for-aging-parents-comes-sooner-now-1533567702

Student Loans and Health

https://www.theatlantic.com/business/archive/2015/02/the-mental-and-physical-toll-of-student-loans/385032/
https://www.sahealth.sa.gov.au/wps/wcm/connect/public+content/sa+health+internet/healthy+living/is+your+health+at+risk/the+risks+of+poor+nutrition\
https://time.com/2854384/student-loan-debt-health/

Student Loans and Divorce Rate

https://www.cnbc.com/2018/08/07/1-in-8–couples-blame-student-loan-debt-for-their-divorce.html

Investment advisory services offered through Ciccarelli Advisory Services, Inc., a registered investment adviser independent of FSC Securities Corporation.  Securities and additional investment advisory services offered through FSC Securities Corporation, member FINRA/SIPC and a registered investment adviser. 9601 Tamiami Trail North, Naples, FL. 239-262-6577.

The Seven Wonders of the Investment World

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By Steven T. Merkel, CFP®, ChFC®

Most of us at some point have received one of those emails claiming that we’ve been chosen as “the lucky winner of a million dollar jackpot” or have seen an ad for a product which claims to fix everything for “just three easy payments of $19.99!” When something seems too good to be true it usually is. Despite the various over-exaggerated financial “opportunities”, there are still investment accounts which could make you go “WOW”. While no investment has a one-hundred percent guarantee of returns, these accounts have opportunities for tax-deferral, attractive contribution limits, tax deductions, and even tax-free earnings.

Employer Retirement Plan Match

As of March 2019, the U.S. unemployment rate has dropped to 3.8 percent and nearly all job sectors continue to add new positions. A growing job market means that many employers are having to offer competitive employee benefits packages to pull in new talent. One of the most popular, and often beneficial, is the employer retirement plan match. The most popular plans include 401(k) plans, 403(b) plans, 457 plans, and SIMPLE IRA’s. Many of these plans include a contribution match from the employer up to a certain percentage of a salary (basically free money). Also, contributions made to the account are typically tax-deferred until you start taking withdrawals. 

Tax-deferred Variable Annuities    

This is a retirement account option which is often overlooked. Similar to the previously mentioned retirement accounts, income and investment gains are taxed-deferred until you begin withdrawals. It may also provide a stream of income throughout retirement, which could be helpful for those concerned about outliving their current retirement account assets. During the accumulation phase, where payments are made to the account, the interest accumulates similar to a savings account. This could allow for great growth potential. In many cases, if the annuitant passes before the defined benefit is paid, the remaining benefits can still be passed to a beneficiary.

Qualified Tuition Programs (529 Plans)

With the rising cost of higher education and the growing need for a highly skilled workforce, tuition is a present concern for many parents and grandparents. The good news is that there are options for parents that want to get a head start on savings. 529 college savings plans are specialized savings accounts that are sponsored by states, state agencies, or educational institutions. 529 plans usually allow for earnings to be deferred from, federal and in many cases, state taxes. You are typically not taxed on the money you withdraw for qualified education expenses. Contributions are considered gifts for tax purposes, and as of 2019, yearly contributions of up to $15,000 per individual will qualify for the exclusion. They also allow a one-time contribution of 5 years’ worth of gifting for parents and grandparents. In 2019, that would equal $150,000 for a married couple.

Employee Stock Options

Being part of a company that offers this is similar to landing an underhanded half-court shot seconds before the bell rings. In other words, very lucky.  An employee stock option grants specified employees of a company the right to buy a certain amount of company shares at a predetermined price (typically discounted) for a specific period. There is typically a vesting period which an employee must wait to pass before purchasing. This allows companies to invest in the long term potential of an employee and allows employees to invest in their company. If you own the stock for at least one year after the exercise date they are also typically taxed at long-term gain rates.

Cost Basis Step-Up at Death

Losing a loved one is never easy. The tax consequences of inheriting their estate can often add unnecessary pressure during an already trying time.  The good news is that some of those assets may be eligible for the “step-up in basis” rule. This allows a readjustment in the value of non-retirement account inherited assets. When a decedent passes on qualifying assets, the heir receives a “step-up” in basis to its fair market value at the time of the owner’s death. The benefactor can then continue to hold onto the asset and defer any new capital gains until they decide to sell the stock. Keep in mind this does not apply to 401K and IRA type retirement assets.

Roth IRAs

Roth IRAs are often considered the golden egg amongst retirement accounts. With Traditional IRAs and 401(k) s, taxes are deferred until you begin to receive withdrawals. With a Roth IRAs, you make contributions with after-tax income and are therefore not required to pay taxes on withdrawals as long as you are over 65 ½ years of age and have had the account for at least 5 years. There is also no age limit for making contributions, and you are not required to begin taking withdrawals at 70 ½.

Health Savings Accounts (HSA)

Rising health care costs have never been in the spotlight more than they are today. With many insurance plans requiring high deductibles, and a single hospital visit often incurring tens of thousands in medical bills, it’s no mystery why HSA’s are being adopted by so many. These tax-advantaged medical savings accounts allow those with high-deductible insurance plans to make tax-free contributions to an account. Those funds can then be put toward qualifying medical expenses. Also, unlike Flexible Spending Accounts, there is no time frame in which you have to spend the funds. This means funds that you do not use can be rolled over to the next year and continue to grow.

In Some Cases Too Good To Be True IS TRUE!

Sometimes that needle in a haystack ends up being made of gold. While there are scores of false financial “opportunities” out there, some types of savings accounts do offer many of the “bells and whistles”. Having options when it comes to your investment accounts could provide you with ample opportunities to preserve and protect your family’s financial well-being.

Investment advisory services offered through Ciccarelli Advisory Services, Inc., a registered investment adviser independent of FSC Securities Corporation.  Securities and additional investment advisory services offered through FSC Securities Corporation, member FINRA/SIPC and a registered investment adviser. 9601 Tamiami Trail North, Naples, FL. 239-262-6577.

New Ways to Stay Organized and Simplify Your Life

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By Jill Ciccarelli Rapps, CFP®

Keeping your important documents neat and tidy can be a challenging endeavor even for the most organized person. Many of these documents end up buried away in a spare drawer or closet, lost or forgotten. If your family needed a copy of your living will or healthcare proxy, would they know where to find it? Would they be able to retrieve it today if required? If you had to evacuate suddenly due to a natural disaster, would you be able to grab your family’s social security cards, birth certificates, insurance, and property records at a moment’s notice?

Some documents, such as bank and credit card statements could be quickly pulled from an online account. Of course, your family would need to keep updated on all your passwords if you were unable to access them yourself.  Other documents require lengthy requests through a records department and may not have an available copy. Having an organized and convenient way to retrieve copies of your most important documents could save you time and stress.

With an online vault, you can keep all these important documents in a single organized location where they can be securely shared and viewed at any time.

Think of it as an online filing cabinet. You log in with your individual password, and your documents are there. Your documents are then separated into folders and subfolders. Most are customizable with the ability to add to or update as you gather more information. The information is kept encrypted, so it is inaccessible to those who do not have authorized access to the account.

The online vault can simplify the process of sharing your documents with family and other important individuals.

Communication is key when it comes to your estate’s legal and financial considerations.  Important people named in your estate documents may not live nearby.  Having online access becomes critical with your quality-of-life healthcare wishes, where time is of the essence. You may want to ease the strain on your family, and give them the ability to access up-to-date details of your healthcare and financial roadmap. After you have uploaded files into your vault, you can delegate access to select individuals. Most of these systems will either provide them with their own login or a code. If they are out of the state or the country, they will still be able to view and access your documents if they have a secure Wi-Fi connection.

You could be more prepared for emergency situations.

Disaster could strike at any time without notice. The Department of Homeland Security recommends that everyone have a safe and reliable way to organize and contain your most important documents so they are prepped for a quick evacuation. Driver’s licenses, social security cards, insurance policies, and property records may all be required following a disaster to gain temporary housing and replace lost belongings. Recovering items stored in a “stormproof” safe may be futile if a cataclysmic event renders an area inaccessible. Storing the items in an online vault ahead of time could allow you to focus solely on getting you and your family out of harm’s way.

Staying organized and connected to your documents and accounts could give you more control and oversight of your financial goals and vision for the future. As you approach retirement and beyond, you may want to consider importing your information into a vault to help you stay on track and protected from life’s unexpected events.  Ciccarelli Advisory Services utilizes its own vault system for clients, which an advisor would be happy to discuss with you. They can help you decide if it is a good fit for you and your family.

Investment advisory services offered through Ciccarelli Advisory Services, Inc., a registered investment adviser independent of FSC Securities Corporation.  Securities and additional investment advisory services offered through FSC Securities Corporation, member FINRA/SIPC and a registered investment adviser. 9601 Tamiami Trail North, Naples, FL. 239-262-6577.

Roth IRAs: What You May Want to Know For the 2018 Tax Season

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Written By Josh Espinosa CFP®,CIMA®

Tax season is upon us. While it may not be the most enjoyable time for many, it does provide a great opportunity to take a look at your retirement savings contributions to ensure that they are in line with your future financial goals. Some may find it beneficial to contribute to a Roth IRA to assist in meeting your goals. April 15, 2019, is the cutoff date for your 2018 tax filling and IRA contributions (you can also begin making contributions for 2019 as well). Now is an opportune time to take a look at the financial benefits and current limits of Roth IRA contributions.

The benefits of a Roth IRA could include:

1.    Greater financial security in retirement and less tax-stress when withdrawing funds in the future. Unlike a Traditional IRA, which are taxed as you make withdrawals, Roth IRA contributions come from after-tax income. While you may have paid those taxes upfront, you typically won’t have to worry how possible future tax increases may limit your retirement income decisions. And since that money has already been taxed, you’re not required to report withdrawals on your tax return.

2.    Freedom and liquidity. If you withdraw from a traditional IRA before reaching 59 ½ you will usually have to pay a penalty. In most cases, Roth contributions can be withdrawn penalty-free and tax-free at any point, at any age. If you are over 59 ½ and have had a Roth account for at least 5 years, you can withdraw both your contributions and earnings with no tax or penalty. There are also possible exemptions for those under 59 ½, such as a first time home purchase.

3.    No required minimum distribution (RMD) in most cases. Most retirement accounts have a “use by” date requiring account holders to withdraw a minimum amount each year beginning at age 70 1/2. Since Roth accounts are funded with after-tax dollars, the IRS has no stake in the game (so to speak). This can allow you to continue to save, grow, and spend your money while in retirement without pushing yourself into a higher tax bracket. There are some exceptions to the “no RMD” rule, such as a beneficiary(s) inheriting the account; in most cases, it is a great tool for tax-free income in retirement.

While Roth IRAs can be incredibly beneficial for those wanting to have a tax-free withdrawals, there are also some limits to take into consideration.

With a Roth IRA, your contributions won’t help lower your taxable income for the year in which you contribute. In some cases, contributions to a Traditional IRA can help to lower your adjusted gross income. This can allow certain individuals to qualify for tax incentives, such as the Child Tax Credit or American Opportunity Credit.

The contribution amount is also limited as well for both Traditional and Roth IRA’s. For 2018, the maximum contribution you can make into a Roth IRA is $5,500 a year (this was increased to $6,000 for 2019). For those over 50, you can add an additional $1,000. For some, this contribution is not enough as a stand-alone retirement plan, but it can be maintained in conjunction with an employer-sponsored 401(k), which offers a higher yearly contribution limit.

There are also limits in place which may disqualify certain individuals from being able to contribute based on their income levels. Traditional IRAs do not have income limits (although they do have income-based tax deduction limits), but Roth IRA’s have maximum income limits for partial and full contributions.  Below are the current income limits for 2018 and 2019.

2018 Roth IRA Income Limits

2019 Roth IRA Income Limits

If your modified Adjusted Gross Income (AGI) does exceed the limit for contributions, some workarounds do exist. Utilizing a Roth conversion (otherwise known as a “backdoor” Roth IRA), where you convert from a Traditional to a Roth IRA, you can take advantage of the future tax-free benefits of a Roth account. There are rules which govern how the conversion is accomplished, and transferred funds are subject to regular income taxes for that year, but it is an option that high-earners could utilize. The processes can be a bit difficult for those who are not familiar, so it can be helpful to consult with your CPA or financial professional for assistance.

There are many factors to consider when deciding if and how much to contribute to a Roth IRA, such as age, current taxable income, financial flexibility, and where your tax rate may fall in the future. Retirement accounts are not typically a “one size fits all”, but a good retirement plan can ensure that your future financial security is preserved and enhanced. As we approach the upcoming tax season deadline, it can help to meet with your advisor to look over your current retirement contributions and discuss any changes in your tax status.

Investment advisory services offered through Ciccarelli Advisory Services, Inc., a registered investment adviser independent of FSC Securities Corporation.  Securities and additional investment advisory services offered through FSC Securities Corporation, member FINRA/SIPC and a registered investment adviser. 9601 Tamiami Trail North, Naples, FL. 239-262-6577.

Sources:

Roth IRA Information

https://www.irs.gov/publications/p590a

https://www.irs.gov/publications/p590b

https://www.irs.gov/retirement-plans/top-ten-differences-between-a-roth-ira-and-a-designated-roth-account

https://www.irs.gov/retirement-plans/individual-retirement-arrangements-iras

https://www.irs.gov/retirement-plans/retirement-plans-faqs-relating-to-waivers-of-the-60-day-rollover-requirement

https://www.irs.gov/publications/p554

https://www.schwab.com/public/schwab/investing/retirement_and_planning/understanding_iras/roth_ira/withdrawal_rules

Start the New Year Fresh with Leisure and Finances

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We’ve all heard the New Year’s resolution clichés – lose weight, eat healthier, learn a new language or skill, and so on. After all, what better time than the New Year to reflect on years gone by and to build a bold vision for the future? 

One New Year’s resolution that is often overlooked is leisure and time management. We all have a finite amount of time at our disposal, and your financial circumstances often are the greatest constraint on your ability to be free from obligations and to enjoy leisure time with family and friends (as well as the much-coveted time for self-care and relaxation!).

Will your leisure time be worry-free? To maximize the enjoyment you obtain from your free time, you must actively prepare for it. Simply put, leisure is a financial priority that requires careful planning.

A crucial step in preparing for your leisure time – especially for those who are approaching or have recently begun retirement – is to update your net-worth statement at least once a year.  The New Year is the ideal time to take a fresh look at your circumstances and determine your budget – not only for how you spend your money, but also for how you spend your time.

If you are excited by the prospect of creating a net-worth statement, you are in a small minority. For many women, reviewing financial statements and documents is often perceived as an overwhelming task. However, the benefits of understanding your financial positioning – and the associated leisure time that your financial situation affords you – is the key to helping you gain real fulfillment from your leisure time with less anxiety and more confidence.

A net-worth statement provides a succinct but comprehensive overview of your full financial picture. Your net worth statement serves four primary purposes: it documents where you stand financially, creates a reminder to take action, serves as a starting point for locating assets when necessary, and provides a tool to help you make informed decisions.

Where Do I Start? 

The first step is to track down all of the accounts and other assets you own, which include (but are not limited to): bank/brokerage accounts, mutual funds, retirement and benefit plans, insurance policies, certificates, bonds, notes held, personal property and real estate. Note that jointly held assets and trusts should also be included. An experienced financial advisor can be instrumental in sorting through the details and illuminating the big picture.

Once you’ve listed each account, document how the assets are held (i.e. joint, individual, trust, qualified plan, etc.), the account numbers, and their current value. If any of your holdings are not clearly valued, include it on your net-worth statement with a value of $1. If desired, you may want to map out all of this information using a flow chart or a similar visual organization tool.

Now that your net-worth statement is compiled, the big question is: How do my financial circumstances impact my freedom to fulfill the most important priorities in my life? As with all aspects of your life, if you focus on a direction and continue to map out your journey, you will increase the probability of reaching your destination – in this case, to achieve the most quality leisure time possible.

Key Questions to Consider

✔With your net-worth statement in mind, here are a brief questionnaire that can provide some guidance in creating a plan that could achieve your financial and leisure objectives:

✔Are you pleased with the progress you’re making? How can you drive progress in the desired direction?

✔Have your decisions last year met your objectives? If not, where have you fallen short?

✔If you are nearing retirement, how secure do you believe your current positioning/asset accumulation is?

✔Are you in great shape to take the vacation you planned? Can you plan and pay for family time together?

✔Will cash flow be more or less than last year? 

✔What changes are significant enough to be factored into your financial goals? 

✔How much do you desire to save and how will you invest? 

In addition to reviewing these short-term considerations, you will want to put your net-worth sheet in the context of your 3-5 year financial strategy. This is a great way for couples to determine if you are on the same page emotionally and with regards to their shared vision. Talk openly about your concerns and goals, focusing on a plan that works for both of you.

On behalf of our CAS family team, Happy New Year and happy planning!

Investment advisory services offered through Ciccarelli Advisory Services, Inc., a registered investment adviser independent of FSC Securities Corporation.  Securities and additional investment advisory services offered through FSC Securities Corporation, member FINRA/SIPC and a registered investment adviser. 9601 Tamiami Trail North, Naples, FL. 239-262-6577.

Driving Meaningful Philanthropy – A Guide to Charitable Giving Vehicles

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By Kim Ciccarelli Kantor, CFP®, CAP®

 

Pledging your hard-earned money to support a good cause can be an enormously gratifying experience. To further enhance the power of your charitable giving, however, you may want to consider planning your philanthropy in advance with the guidance of your advisory team and your family.

 

A strategic approach to planned giving provides you with the opportunity to (1) maximize tax efficiencies; (2) build a sustainable, organized framework for your family’s charitable giving as a component of your wealth management plan; and (3) enrich and educate your children and grandchildren about the positive impact of philanthropy.

 

Many vehicles exist that can drive meaningful philanthropy for years to come. Each charitable giving method is distinctive in its structure and the results generated. Here is a brief overview of five popular charitable vehicles that could be successfully implemented in your family’s full financial picture:

 

Charitable Lead Trusts provides income to a charity of your choice for a specific time period. Upon termination, the remainder reverts to the original donor or another beneficiary. CLTs are especially effective when the primary donor has assets that are expected to appreciate and to be inherited by your loved ones.

 

Charitable Remainder Trusts are essentially the inverse of charitable lead trusts. Charitable remainder trusts provide income to a non-charitable beneficiary for a specified time period, with the remainder being passed to the charity. CRTs are useful for donors with highly appreciated assets who need additional income and would like to diversify their holdings.

 

Donor-Advised Funds serve as a conduit between your family and a community foundation or charitable organization. The donor funds an account and may select an investment strategy that reflects their goals. DAFs provide a great deal of flexibility in establishing a personalized timetable for recommending grants to specific qualified charities. The donor can also appoint successor advisors (i.e. family members) to sustain charitable endeavors for future generations.

 

Endowment Funds are established by a community foundation or public charity that makes consistent withdrawals to support either a specific need or the organization’s operating costs. Endowment funds are perpetual in nature and may be initiated during the donor’s lifetime or as part of their legacy plan.

 

Pooled Income Funds is a charitable fund maintained by a public charity which generates income for life to the donor and grants the remainder interest to a designated charity. The fund receives contributions from the donor that are pooled for investment and administrative purposes. A qualified charity will receive the remainder interest. Pooled income funds present a great opportunity for significant tax deductions, extensive family involvement and flexibility.

 

Your selection of charitable vehicle will depend upon your unique personal circumstances. Discuss these options with your advisor and family to identify which choice will best enrich your current philanthropic goals and suit your family dynamics.

 

Year-End Charitable Gifting FAQs

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By Kim Ciccarelli Kantor, CFP®, CAP®

 

If you are making charitable donations this holiday season, you stand to benefit from understanding the potential tax savings that can be achieved through proper planning. By addressing these three frequently asked questions about year-end philanthropy, you can strategically maximize the impact of your gift.

 

 

How do I deduct charitable gifts from my tax return? To deduct charitable donations, you must itemize them on the IRS’ Schedule A and save documentation in case of an audit. The IRS needs to know three things: the name of the charity, the gifted amount and the date of your gift.

 

From a tax planning standpoint, claiming itemized deductions is only worthwhile when these line items exceed the standard income tax deduction ($12,000 for individuals, $18,000 for heads of household, $24,000 for joint filers).

 

Also, in order to qualify for an itemized deduction, your donation must go towards a qualified charity with 501(c)(3) non-profit status. To verify the tax-exempt status of your favorite charities – and to discover more about how effectively the organization utilizes donations – visit www.CharityNavigator.org.

 

 

Is it more beneficial to make outright gifts of cash or to donate other assets? Donating securities – especially those that you have held for more than one year – can be a tax-savvy move. By authorizing your bank or brokerage institution to transfer shares directly to a charity, you can avoid paying the capital gains tax on assets you have held for more than one year.

 

Additionally, you can take a current-year tax deduction for the full fair market value of the donated shares, and the charity will receive the full before-tax value of the shares.

 

 

As a retiree, what are some other tax-efficient methods for charitable giving? If you are not dependent on the income generated from your traditional IRA, you may consider making a qualified charitable distribution (QCD) from your account.

 

Traditional IRA owners ages 70½ and older can arrange direct transfers of up to $100,000/year from an IRA to a qualified charity. The full amount of your annual QCD is excluded from your adjusted gross income for the year, and these gifts can satisfy some or all of your required minimum distributions.

 

Secondly, if you have an unneeded life insurance policy, you might consider gifting that policy to a qualified charity. In doing so, you can benefit from a current-year income tax deduction; and if you keep paying the policy premiums, each payment could become a deductible charitable donation.

 

A donor-advised fund (DAF) can also be a viable option for providing you with a significant charitable deduction. Especially given the changes to the standard deduction under the new tax law, utilizing a donor-advised fund for your philanthropic endeavors can provide you with a larger itemized deduction today for ongoing grants to your preferred charities in future years.

 

Your planned giving strategy will depend upon your individual circumstances and the nuances of your family’s wealth management plan. Plan well and your efforts will be rewarded!

 

9 Tax-Saving Opportunities for 2018

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By Steven T. Merkel, CFP®, ChFC®

 

With the passage of the Tax Cuts and Jobs Act of 2018, the tax planning landscape has changed significantly since last year – presenting new challenges and opportunities for our clients.

While your family’s circumstances are unique, most of the suggestions below are widely applicable for promoting year-end tax efficiency and keeping more money in your pocket as we enter the New Year.

 

Important: All of the following actions need to be completed before December 31, 2018, in order to achieve any tax benefit. Your CAS advisor can provide strategic direction on how to best apply our general recommendations to your specific financial plan.

 

#1 – Make the Most of the Annual Gift Tax Exclusion

The gift tax exemption has been increased to its highest level in history. In 2018, individual filers can gift up to $15,000 to each family member (joint filers can gift up to $30,000 per beneficiary).

Example: If you and your spouse have three children, you can give up to $30,000 to each child ($90,000 total) without paying any gift taxes.

Capitalizing on the annual gift tax exclusion is an effective way to reduce your taxable estate while providing your loved ones with a financial boost to end the year.

 

 

#2 – Take All Required Minimum Distributions (RMDs) for Individual Retirement Accounts (IRAs)

If you own one or more IRAs and are age 70½ or older, ensure that you have taken your required minimum distributions for each account. This includes RMDs for all inherited IRAs of which you are listed as the beneficiary.

Failure to take the annual RMDs can result in a penalty tax of 50% on the shortfall. For instance, if you were required to take distributions of $5,000 from an IRA in 2018 – but only withdrew $1,000 – you would owe the IRS $2,000 (half of the remaining RMD).

 

 

#3 – Maximize Retirement Plan Contributions

If you are under age 70½ and have been contributing to a retirement plan – a 401(k), traditional or Roth IRA, SEP IRA, etc. – you could benefit from making the maximum contribution to each plan.

In 2018, the limit on total combined contributions you can make to all of your traditional and Roth IRAs is $5,500 ($6,500 if you are above age 50). SEP IRAs and 401(k)s are also subject to annual contribution caps.

By reaching the limit each year, you will be taking full advantage of the tax-deferred benefits offered through these retirement accounts.

 

 

#4 – Evaluate Tax Loss Harvesting Opportunities

 Especially with the recent downturn in many sectors of the domestic and international markets, you may want to consider selling some positions that have lost market value.

By “harvesting” this loss, you can leverage the decrease in value to offset taxes on both capital gains and income.

Tax loss harvesting can be an effective way to remove struggling stocks from your portfolio while also reducing your tax burden. Ask your advisor whether this strategy would be appropriate for your financial circumstances.

 

 

#5 – Be Smart with Charitable Giving

If you are age 70½ or older, you are eligible to make qualified charitable contributions (QCDs) directly from an IRA. You may transfer up to $100,000/year to the charity of your choice with no tax liability.

Important: Retain all of your receipts and written records of charitable gifts (including cash, property and appreciated assets) in the event that you are audited by the IRS.

Other tax-efficient strategies for your year-end charitable giving include donating to a private foundation, donor-advised fund (DAF), or charitable remainder trust.

Prior to the New Year, we will send you a more detailed breakdown of best practices for end-of-year charitable giving.

 

 

#6 – Utilize Health Savings Accounts (HSAs)

For those of you who are enrolled in a high-deductible health insurance plan, you may be eligible for a health savings account (HSA).

These savings accounts can be advantageous from a tax standpoint when you use your funds on qualified medical expenses. In addition, the funds can roll over and accumulate from year to year if they are not spent.

If you are eligible for an HSA, we recommend making a contribution each year (the appropriate amount is contingent on your anticipated medical expenses and other factors). The maximum annual contribution for an individual HSA is $3,450; for family HSAs, the limit is $6,900.

 

 

#7 – Establish and Contribute to 529 Plans

Another tax-advantaged account to consider is 529 plans. These education savings accounts can be established on behalf of your child or grandchild, and the earning accrued are completely tax-free if the distributions are spent on qualified education expenses.

In most cases, an individual may gift up to $15,000/year per beneficiary ($30,000 annually for married couples) to a 529 plan without gift tax consequences (see our previous article on 529 plans for more details).

 

 

#8 – Compare New Standard Deduction to Anticipated Itemized Deductions

The standard deduction for 2018 is significantly higher than in previous years (see table below). As a result, those of you who have typically itemized your tax deductions may find it more difficult to do so this year.

It may be in your best interest to shift (or “bundle”) some of your current-year deductions to 2019 if your itemized deductions for 2018 will be less than the standard deduction.

 

 

#9 – Check All Beneficiary Designations

Ensure that the desired beneficiaries are listed on all of your accounts, including (but not limited to) employer benefits, IRAs, life insurance policies, and annuities. Complete a new beneficiary form if your listings are inaccurate or out of date.

Also, adding “TOD” (transfer on death) to all taxable accounts is a great way to allow your beneficiaries to receive assets from your investment accounts after you pass without going through the probate process.

For more guidance on how to update your beneficiaries, see our article on the topic.

 

 

As we close out 2018, make sure that you are not missing out on any opportunities to reduce your tax burden for the year. As always, our team is happy to guide you through these action items to help preserve and enhance your family’s financial wellness.

For more details on how the new tax law could impact you, check out our comprehensive presentation.

 

 

Kim Ciccarelli Kantor and FSC Securities Corporation do not offer tax advice or tax services. Please consult your tax specialist for individual advice. We make no specific comments or recommendations on any tax-related details.
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