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Financial Education

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

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.


Roth IRA Information








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.

Education – The Gift that Keeps on Giving

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Reinforcing the Value of College Savings for Future Generations


By Kay Anderson, CFP®


The economic landscape of the U.S. has shifted considerably over the past 30 years. As the U.S. has steadily lost our comparative advantage as a manufacturing powerhouse (largely due to automation and inexpensive overseas labor), high-skilled service positions have emerged as the greatest opportunity for gainful employment in the 21st century.


Fortunately, the job market has been thriving for the past several years. The October 2018 BLS report found that the national unemployment rate is 3.7% – the lowest level since 1969. In October alone, 250,000 jobs were added. While strong job creation trends are encouraging, the new openings will increasingly demand that workers possess a strong educational background.


A Georgetown University report projected that there will be 55 million jobs created in the U.S. economy through 2020. Of these job opportunities, 24 million openings will be newly created, whereas 31 million openings will result from Baby Boomer retirements.


About two-thirds of these job openings will require higher education: 35% of the jobs will require prospective employees to earn a bachelor’s or graduate degree, and 30% will demand an associate’s degree or some college.


As a result of these employment trends, enrollment in American colleges and universities has reached an all-time high, with a projected student enrollment of 19.9 million students in fall 2018 (a 23% increase in enrollment since fall 2000).


Without question, the need for postsecondary education has never been more vital to achieving success in your career. To gain a competitive edge in today’s workplace, younger generations must embrace some form of training or education beyond a high school diploma.



Figures 1 and 2. As job openings for high-school-educated workers have sharply declined since the 1980s – and especially since the Great Recession – employees with Bachelor’s degree or other college experience have seen expanded job opportunities.




Demand for Higher Education Drives Skyrocketing Costs

As employers have continued to embrace a college-educated workforce over the past 30 years, the cost of college tuition and fees has risen dramatically. According to the College Board, the cost of a four-year degree from a public college or university has tripled since 1988 (when adjusting for inflation).


During the same timeframe, the inflation-adjusted cost of earning an associate’s degree or a four-year degree from a private college has doubled (see figure 3).


Even within the past 10 years, the expenses associated with college have steadily increased – not only for tuition and fees but also for room and board, books, supplies and other expenses (see figure 4).


An analysis by the College Board found that the average tuition and fees for public, in-state, four-year institutions have increased by 3.1% annually between 2008 and 2018 (adjusted for inflation).


The cost of attending a private college or university has followed a similar trend; in the past year alone, their average tuition and fees rose by 3.3% (before adjusting for inflation).


Contact your CAS advisor for a personalized estimate on future college expenses for your child or grandchild.



Figure 3. Tuition and fees for postsecondary education have skyrocketed since 1988, and the upward trajectory continues to hold steady.




Figure 4. The cost of attending a four-year college – including associated expenses like room/board and books – ranges from about $25,000 to $52,000 per year (before financial aid and scholarships are applied).



About 529 Plans – An Ideal Vehicle for Education Savings

While there are many ways to save for college, 529 plans are widely considered to be the “gold standard” for building financial preparedness throughout your child or grandchild’s college experience.


How does it work?

A 529 plan can be established with a principal as small as $250. Each 529 plan is controlled by an owner (usually a parent or grandparent) who has discretion over the investments and the beneficiary listed. The beneficiary on a 529 account may be changed at any time based on the needs of your family.


When the account is established, you may elect to make monthly, quarterly or annual contributions. You should also ensure that a contingent owner is named on the account, in the event that the main owner is no longer able to manage the 529 plan.


Best of all, the earnings within a 529 account are exempt from federal taxes. As long as the funds are used towards qualified educational expenses – tuition and fees, books and supplies, room and board, and computers or other equipment – you will never pay taxes on the gains.


In addition, while contributions to the 529 plan are not deductible at the federal level, many states do offer a tax credit or deduction on your state income taxes (see figure 5 for details).


New for 2018: Funds from a 529 plan can now be used to pay tuition at private K-12 schools as well (annual limit of $10,000 in distributions per child).



What are the limitations?

Once the account is established, anyone can contribute to the 529 plan. It is not restricted to contributions from the owner only. For instance, if you have multiple family members that want to provide financial support for a child’s educational pursuits, you can all deposit into the one account.


An individual may gift up to $15,000/year per beneficiary ($30,000 annually for married couples) without gift tax consequences.


Exception: The “five-year rule” for 529 plans allows you to make a one-time, lump-sum contribution while bundling five years’ worth of annual exclusions. In other words, an individual may provide an initial contribution of up to $75,000 to the 529 plan ($150,000 for married couples). If you elect to go this route, a gift tax return (709) does need to be filed for informational purposes only; no gift tax will be due.


The five-year rule allows you to start out with a larger principal and potentially build more gains over time. However, you may not contribute any additional funds to the account during the next five years.


Our team would be happy to discuss the optimal strategy for establishing and funding 529 plans based on your family’s unique situation.



Figure 5. Many states offer tax incentives for families who contribute to their child or grandchild’s 529 plan.



Make it Personal – Strategies for Gifting Education to Family

Each year around the holidays, my niece Victoria would receive an abundance of gifts from her parents, grandparents and great-grandparents. Like many families, we would spend every Christmas morning opening the gifts, and then spend the next week figuring out where to put them all!


When Victoria was five years old, I decided to take an unconventional approach to her holiday gifts. Instead of purchasing the latest tech gadget or a new outfit, I established a 529 plan and named her as the beneficiary (of course, I still have a small wrapped gift for her under the tree!).


I started making monthly contributions to the plan; and at the end of each year, we review the statement together and talk about her dreams for the future. As with most young children, her career aspirations are always changing over time – from a veterinarian, to a teacher, to her latest desire to be the next pop superstar!


Our annual discussions about her future are a fun and easy way to connect with her. These holiday meetings provide a great opportunity to help Victoria learn more about money, education and the importance of savings. Every year, she asks me more questions and builds on her foundation of practical knowledge.


Most importantly, I feel confident that whatever path she chooses after high school, my family and I will be there to support her dreams.


Our team has also created “529 gift certificates” on behalf of clients who have been funding an account for a family member. These certificates are a fun and visually appealing way to announce the educational savings to your child or grandchild and provide a tangible reminder of your commitment to their future success. Ask your advisor for more details about our certificates.



Given the importance of higher education in attaining a successful career – and the astronomical cost of today’s college experience – the need to start saving early and often has never been more crucial.


A 529 plan provides you with a tax-advantaged means of empowering your child or grandchild to pursue their educational aspirations, while also reducing their potential student loan debt burden. In addition, a 529 plan can serve as an excellent way to teach young people about the importance of consistent saving and the value of their future collegiate endeavors.


Simply put, 529 plans are the gift that keeps on giving!


The 50/30/20 Plan

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As a whole, our budgeting and saving habits could use some serious improvement.


A 2017 study by the Federal Reserve found that only 44% of U.S. households could cover a $400 expense with their personal savings. Whether it’s a visit to the emergency room, a necessary car repair, or even a hefty speeding ticket, more than half of American households would need to pay for these predictable expenses by accruing more debt.


There are a number of factors that have led to this widespread financial unpreparedness. Real income for wage-earners has stagnated since the 1980s, while average household student loan debt and credit card debt have dramatically increased. However, perhaps the primary cause of our poor saving habits is the lack of education surrounding personal financial management.


When done properly and consistently, budgeting can be the single most effective way to build your financial security. While most people understand the importance of sticking with a budget, the concept of “proper” budgeting can be hard to pinpoint. How much should you be spending and saving? Where do you even start?


Here is a simple yet effective tool to help you get on the right track: the 50/30/20 plan. In order to get started, track all of your living expenses for the previous month so you can get a feel for your “natural” spending and saving habits (contact your CAS advisor for our Monthly Spending Tracker to simplify this process).


With this foundation, you can start to put the 50/30/20 plan into action going forward.



Step One: Calculate Your After-Tax Income

Knowing your after-tax income – or take-home pay – is essential for determining your monthly budget.


If you are an employee with a steady paycheck, your after-tax income should be fairly easy to determine. Assuming you claimed the proper withholdings on your W4, most of your federal income tax is automatically deducted. In most cases, state and local taxes – as well as Social Security and Medicare – are deducted as well.


Look at your paystubs to confirm which of these taxes are automatically withheld. If health insurance, retirement contributions, or any deductions other than taxes are taken out of your paycheck, add them back to calculate your after-tax income.


If you are self-employed, your after-tax income equals your gross income less your business expenses (i.e. the cost of your laptop or transportation costs) and less the amount you set aside for taxes. You are responsible for remitting your own quarterly estimated tax payments to the government.


Note: Being self-employed means that you must also pay the self-employment payroll tax of 15.3%, which is double what you would pay in Medicare and Social Security taxes in comparison to an employee.



Step Two: Limit Your Needs to 50 Percent of After-Tax Income


Take a look at your Monthly Spending Tracker. How much do you spend on “needs” each month?


The basic necessities are more restrictive than many people realize. When we say “needs”, we mean any payment for a good or service that would severely impact your quality of life, such as:




Student loan payments

Health insurance

Car insurance

Car maintenance


Personal supplies


The amount that you spend on these things should total no more than 50 percent of your after-tax pay.


In addition to the above list, some expenses can be considered needs to an extent. For instance, spending a bare minimum of clothing is necessary; but a $400 shopping spree is a want. Gas to travel to/from work is a need; the fuel used on a cross-country road trip is a want. The same is true of auto repairs: mechanical repairs are a need, but cosmetic fixes or enhancements are a want.


If you can’t forgo a payment such as a minimum payment on a credit card, it can be considered a “need as your credit score will be negatively impacted if you fail to pay. By the same token, if the minimum payment is $25 and you regularly pay $100 a month to keep a manageable balance, the $75 difference is not a need.



Step Three: Limit Your Wants to 30 Percent


Putting 30 percent of your money toward your wants sounds great on the surface. Say hello to beautiful shoes, a trip to Italy and swanky restaurants! Well, not quite.


The reality is that “wants” are not the same as luxuries. A want is considered to be any payment that you can forgo with minor inconvenience, including:


Vacation/non-business travel

Pet expenses

Eating out


Salon/spa services

Gym memberships

Home services (not utilities)

Personal gifts

Charitable giving


If you think you might be spending more than 30% of your income on wants, you are not alone. The 2017 Federal Reserve study also found that the average household spends nearly 50% of their annual income on goods and services that are beyond the basic necessities. Although there is a time and place for spending your “fun money” on the things you enjoy, the key is to keep it below that 30% threshold.



Step Four: Spend 20 Percent on Savings and Debt Repayments


You should spend at least 20 percent of your after-tax income repaying debts and saving money in your emergency fund and your retirement accounts.


If you carry a credit card balance, the minimum payment is a need and it counts toward the 50 percent. Anything extra is an additional debt repayment, which goes toward this 20 percent category. If you carry a mortgage or a car loan, the minimum payment is a need and any extra payments count toward savings and debt repayment.


Note: Find out if your employer offers a 401(k) plan. Most employers do, and some offer a substantial match for all of your contributions. This is a great way to build strong retirement savings, especially if you start early. Your CAS advisor would be happy to discuss the breakdown of where your assets are invested.



The 50/30/20 Plan in Action


As an example, say your total take-home pay for each month is $3,500.


Using the 50/30/20 rule, you can spend no more than $1,750 on your needs per month. You probably cannot afford a $1,500-a-month rent or mortgage payment – not unless your utilities, car payment, minimum credit card payments, insurance premiums, and other necessities of life combined are less $250 a month.


If you already own your home or you are locked into a lease, you’re pretty much stuck with that $1,500 payment. Consider relocating when your lease expires to make your budget more manageable or take a look at your other needs to see if there’s a way that you can reduce any of them.


How might you get back on needs costs? Consider shopping around for more affordable insurance, or transfer the balance on your credit card to a different card with a lower interest rate. Your goal is to be able to fit all these expenses into 50 percent of your take-home after-tax income.


Now you can spend up to 30% of your income – $1,050 per month – on your wants. You might consider doing without a few things and shifting some of this money to your needs column if you’re coming up short there. This would not necessarily be an indefinite shift, but a temporary means of getting your needs expenses down to a more manageable level.


After needs and wants are under control, you have $700 left (the last 20 percent). You know what to do with it. Save for an emergency, pay down debt, and plan for your future.




Special thanks to Harvard bankruptcy lawyer Elizabeth Warren and her daughter, Amelia Warren Tyagi, who coined the 50/30/20 plan in their 2005 book “All Your Worth: The Ultimate Lifetime Money Plan.”
Material discussed herewith is meant for general illustration and/or informational purposes only, please note that individual situations can vary. Therefore, the information should be relied upon when coordinated with individual professional advice.


Tax Breaks for Continuing-Care Retirement Communities

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By Paul F. Ciccarelli, CFP®, ChFC®, CLU®


Retirement is an exciting time of transition in your life! As you approach your golden years, one of the key decisions you may be contemplating is your living situation – not just for today, but with special consideration for future circumstances as well.


Class A continuing-care retirement communities can be an attractive lifestyle option for well-off retirees. Class A CCRCs offer a full range of services, from independent living to skilled nursing care. These communities offer plenty of amenities, events and other opportunities to remain social, active and healthy throughout your retirement.


In a sense, CCRCs are like college campuses for seniors – not to mention that if you were to stroll through some of these campuses, you might think you were at a country club!


In addition to the social benefits, continuing-care retirement communities can provide you with a more stable means of managing your long-term health care costs. When you buy into the community and pay the monthly maintenance fees, you are essentially paying up front for all of your lifetime health care services – from independent living to full care.


While most people who are considering buying into a Class A CCRC are aware of the aforementioned benefits, many people who move into a community are missing out on a little-known tax break that could significantly lower your costs.


The potential tax-saving benefits of moving into a CCRC are two-fold: (1) a one-time deduction of your entrance fee and (2) an ongoing deduction of your monthly fees.


When you file your taxes for the year, you are allowed to deduct the costs as prepaid medical expenses – even if you live independently at the CCRC and require little to no care. Since the CCRC fees can be quite steep, significant write-offs may be allowed when your out-of-pocket medical expenses surpass 7.5% of your adjusted gross income for 2018 (income floor increases to 10% in 2019 and beyond).



How Does It Work?

The idea of prepaid medical deductions might sound too good to be true, but it has been affirmed by the U.S. Tax Court ruling in D.L. Baker v. Commissioner [122 TC 143, Dec. 55, 548 (2004)].


The Bakers won big, and the precedent set by their case is good news for many seniors. According to CPAs, the 2004 decision allows your one-time entry fee and recurring monthly charges at Class A CCRCs to be classified as prepaid medical expenses.


Even better, the amount that can be treated as medical expenses is not dependent on the level of health care services you received during a given year. Rather, the deduction is determined based on the CCRC’s aggregate medical expenditures in relation to their overall expenses or revenue generated from resident fees. All Class A CCRCs should be able to provide tax information from previous years for you to evaluate.


Example – Entry Fee Deduction: Fred and Wilma Flintstone move to a Class A CCRC in 2018 and pay an entrance fee of $800,000 (non-equity plan). A large portion of the entrance fee would be deductible in the year of closing. Assuming the deduction is 45% of the entrance fee, they could be eligible for a medical expenses deduction of $360,000.


However, their adjusted gross income for 2018 was only $100,000. Without any additional planning, Fred and Wilma would end up with a negative taxable income. Although they would pay $0 in income taxes for the year (which is great), the IRS does not allow Fred and Wilma to “carry over” their negative taxable income to future tax years.


Thus, if you don’t have sufficient taxable income in the year of your closing, you are effectively wasting a significant amount of the available deduction.


Note: To fully benefit from the second tax break – the deduction of your monthly fees – you will also need to continuously plan to generate enough taxable income for each year after you buy into the CCRC.



How to Create Taxable Income

One of the most beneficial methods for “creating” additional taxable income is to convert some of the assets in your traditional IRA to a tax-free Roth IRA. Although a Roth conversion typically increases your tax burden significantly, the deductions from the CCRC medical expenses may be used to offset taxes on the conversion.


If done properly, you will likely not pay any taxes on the conversion. Best of all, once the conversion is complete, the assets in a Roth IRA remain tax-free for the rest of your lifetime and the lifetime of your spouse.


Converting traditional IRA assets to a Roth IRA is not only useful for creating the large amount of income needed to fully benefit from the entry fee deduction; conversions may also be used to generate the income needed to take advantage of the recurring annual medical expense deductions.


An added benefit of Roth IRA is the lack of required minimum distributions (RMDs). If the assets in your Roth IRA are not withdrawn during your lifetime (and perhaps even for the lifetime of your spouse), then your children or other beneficiaries will inherit those tax-free assets.


With an inherited Roth, your children/beneficiaries will never have to pay taxes on those assets, and there are few restrictions on how that money can be invested or used (with the notable exception that your beneficiaries will be required to take RMDs from the account based on their life expectancies).


Simply put, converting your assets to a Roth IRA not only helps you to create income in the short term; it is also a great way to compound your tax deductions for the duration of your lifetime and beyond.


Another popular option for creating taxable income is to take a large distribution from a traditional IRA or a tax-deferred annuity. In the earlier example, if Fred and Wilma withdrew $360,000 from an IRA or annuity (the amount needed to make full use of the one-time entry fee deduction), they would pay no additional income tax on that distribution.


Of course, the best approach for optimizing your tax savings will vary based on your personal financial circumstances. A detailed review of your full financial picture would allow you to devise a plan for leveraging the assets in your portfolio in the most advantageous way possible.


Last but certainly not least: The deductions for your initial entrance fee and the ongoing monthly fees are available on a “use it or lose it” basis! In other words, you will need to plan out your taxable income every year to ensure that you receive the maximum benefit from these substantial deductions.



Because of the significant but complex planning opportunities available to individuals moving into a Class A CCRC, we strongly recommend that you seek professional advice before you make the move.


A financial planner who is well-versed in the tax planning opportunities for CCRCs can help you to enhance your cash flow and financial positioning for the remainder of your lifetime.


To discover how our team can guide you towards financial wellness,

visit our website at www.CASMoneyMatters.com or call Paul at 239-262-6577.


Paul Ciccarelli 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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