Year-End Financial Planning

Presented by Tim Traub

With the end of the year quickly approaching, it is a wonderful time to begin organizing your finances for the New Year. We’ve put together a list of important financial planning topics that warrant consideration.

 Flexible spending accounts

Money that you’ve put away in your flexible spending accounts (FSAs) generally must be used by year-end or it will be forfeited. Recently, however, the IRS modified this rule to allow participants to carry over up to $500 of unused funds into the next year. Your employer plan must elect to participate in this option, so be sure to check your plan terms to see if you can take advantage of this new rule.

If your employer has not elected this carry-over option, now is the time to schedule those doctor’s appointments you’ve been meaning to attend to or to stock up on items that are eligible for flexible spending. Doing this as soon as possible may help relieve some last-minute headaches and ensure that you don’t lose your hard-earned dollars.

Additionally, open enrollment begins around this time of year for certain employee benefit plans. So if you’re not using an FSA, take stock of your average expenses that would qualify. This can help you determine whether setting up an FSA for 2014 makes sense for you. If you already use an FSA, assess how much extra you have left in the account or how much of a deficit you ran and use it to calculate your allotment for the New Year.

Medicare enrollment

Open enrollment for Medicare started in October and ends December 7, 2013. For many, this is the only chance to change health and prescription drug coverage for 2014. If you want to make any changes, act now.

Recharacterization of Roth IRA rollovers or conversions

If you converted a traditional IRA to a Roth IRA during 2013 and paid tax on the conversion, mark your calendar now to allow plenty of time to meet the October 15, 2014, deadline for recharacterizing (i.e., undoing) the conversion.

Reporting losses on stock sales

Be aware of important deadlines regarding trading date closings. A trade to sell a long position must be executed by the close of the last trading date of the current year. Similarly, a trade to sell a short position must be executed so that it settles by the last trading date of the current year.

Retirement planning

Review your retirement plan allocation and contribution elections. If you’re not taking full advantage of any matching features or potential tax benefits for maximizing your contributions, now is the time to evaluate your ability to do that. Also, when it comes to qualified savings, assessing your allocation to ensure that it’s still in balance and pursuing your objectives will help you start the New Year off on the right foot.

Taking stock of savings

Did you set savings goals for the current year? Make a realistic assessment of how well you’ve met those goals and think about your goals for the upcoming year. There’s no reason why you can’t make some financial resolutions along with your other new year’s vows. If you determine that you are off track, let us help you develop and monitor a financial plan.

Taxes, taxes, taxes

RMDs and estimated taxes. If you’re turning 70½, you must devise the best strategy for taking required minimum distributions from your traditional IRA and 401(k) plans.

Be sure to take potentially large bonuses and a prosperous business year into account when considering your taxes for 2013. You may have to file estimated taxes or increase the upcoming January payment.

Managing marginal tax brackets. In 2013, the IRS added a 39.6-percent tax bracket, a 20-percent capital gain tax bracket, and a 3.8-percent Medicare tax on net investment income. Moreover, those in higher marginal tax brackets may be subject to an additional 0.90-percent withholding tax, as well as limits on and phase-outs of itemized deductions and personal exemptions.

If a taxpayer is on the edge of the new tax thresholds, he or she may be able to defer or accelerate income or deductions to help minimize taxes.

·         The 39.6-percent marginal tax bracket affects taxpayers with taxable incomes in excess of $400,000 (filing single), $450,000 (filing married), $425,000 (filing head of household), and $225,000(filing married but separately).

·         The 20-percent capital gain tax rate applies to those in the 39.6-percent marginal tax bracket.

·         Itemized deductions and personal exemption phase-outs affect those with adjusted gross incomes above $250,000 (filing single), $300,000 (filing married), $275,000 (filing head of household), and $150,000 (filing married but separately).

·         The 3.8-percent surtax is applied on the lesser of net investment income or the excess of modified adjusted gross income over $200,000 (individual) and $250,000 (married filing jointly).

Too little or too much withholding. Also of note is that workers with gross earned income of more than $200,000 may have had too little or too much tax withholding in 2013. Employers may have withheld an additional 0.90-percent tax on incomes over $200,000 without regard to the taxpayer’s withholding status, which would put these taxpayers at a higher threshold. Other taxpayers may have had too little withholding because of other income unknown to the employer due to second jobs. Employees should plan to take a credit on their returns or pay additional taxes.

Estate planning

To help ensure that your estate plan stays in tune with your goals and needs, you should be reviewing and updating it on an ongoing basis. If you haven’t done so during 2013, take time before the end of the year to:

·         Check trust funding

·         Account for any life changes

·         Update beneficiary designations

·         Review trustee and agent appointments

·         Review provisions of powers of attorney and health care directives

·         Prepare for the distribution of personal effects

·         Get a firm understanding of all of your documents

Consider seeking professional guidance

The above list of financial planning dates is not exhaustive. We are happy to go over deadlines that are most relevant to your personal situation, so you can better prepare for the coming year.

Whatever your planning may entail, we wish you a happy, healthy, and prosperous 2014!

                                                                                             ~~~

 

 

This material has been provided for general informational purposes only and does not constitute either tax or legal advice. Although we go to great lengths to make sure our information is accurate and useful, we recommend you consult a tax preparer, professional tax advisor, or lawyer.

IRS CIRCULAR 230 DISCLOSURE:

To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code, or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed herein.

Tips and Tricks for Smart Holiday Shopping

Tips and Tricks for Smart Holiday Shopping

Presented by Tim Traub

As the end of the year approaches, shopping malls and online stores will soon be bustling with bargain hunters on a mission to check items off their gift lists. Yes, the holidays are just around the corner, and, according to the National Retail Federation, the average person will spend about $740 on presents, decorations, and the like this year. Although the thought of crowded parking lots, long lines, and sold-out items may be daunting, these smart shopping strategies can help you ease the stress of gift-buying.

Plan ahead

It may seem obvious, but planning ahead is key to efficient holiday shopping. Knowing what you want from different stores and how much you can spend will help you make quick work of your list. Here are a few ideas for getting organized before the rush starts:

·         Make a detailed list. There’s nothing worse than forgetting someone and having to make a last-minute trip to the mall. In addition to friends and family members, think of any coworkers, teachers, or neighbors you’d like to acknowledge this year.

·         Set a budget. Before you spend a dime, ask yourself how much you want to shell out overall. (Be sure your total is realistic.) Then, break out costs for each individual on your list.

·         Do your research. It’s helpful to compare products and prices online before heading to the mall. Making a game plan for what you want to buy and where can help you avoid rushing from store to store looking for the items on your list.

·         Get there early. Some retailers program their registers the night before a sale, so shopping after 6:00 p.m. the night prior can be a great way to take advantage of advertised discounts before the crowds descend.  

Try shopping online

Visiting brick-and-mortar stores during the holiday season often means waiting in traffic and searching for scarce parking spaces, all to get inside and wait in another line at the register. Although some of the best deals may be found in-store, buying gifts online has its advantages. Here are some factors to keep in mind:

·         Consider the time value of money. It’s safe to say that browsing products online is much less time-consuming than wading through crowds at the mall, especially if you’re not sure what you want. Staying home and hopping on the Internet can save you time (and gas money), at least until you’ve figured out what you’re buying and where.

·         Weigh your shipping options. Many online retailers can ship your purchase to a different location than the billing address. This can be a useful feature if you’re traveling and want to send gifts directly to your destination. Some merchants also let you buy online and pick up the item at the store.

·         Check return policies. Stores’ policies vary significantly, so before you buy anything online, get the details on returning and exchanging items. For instance, who pays for return shipping? Can you return an item you order online to your local retail store?

·         Stick with trusted retailers. It’s best to do business with merchants you know and to avoid any too-good-to-be-true online promotions. If you’re interested in an item on an unfamiliar website, look for the site’s security and privacy seals or check out other customers’ experiences at www.bizrate.com.

Find creative ways to save money (and time)

Whether you plan to shop online or at the mall, saving a little money here and there can really help stretch your holiday budget. For example:

·         Compare prices on the go. If you need to check prices while you’re out and about, consider using a smartphone app like Red Laser, which lets you scan a product to see if it’s available anywhere else for less.

·         Use cash. Shoppers who pay with credit cards are likely to spend more than those with cash in hand. It’s all too easy to buy on impulse this time of year, and making cash purchases may help deter you from blowing your budget.

·         Outsource gift wrapping. Many charity groups offer gift-wrapping services in malls and stores. For a small donation, you’ll save yourself some time, not to mention the cost of supplies like ribbon and tape.

·         Don’t overlook coupons. During the holidays, coupon specials abound. Browse your local newspaper supplements, and look online for deals from retail stores you plan to visit. Apps like Coupon Sherpa can even deliver discount offers to your phone.

Make a post-shopping to-do list

After you’ve finished your shopping, there are still a few things you can do to avoid last-minute hassles:

·         Keep track of purchases. Save your store receipts and print out confirmations for online purchases. This can come in handy when checking your credit card or bank statements, and also if you need to return or exchange items.

·         Include gift receipts. As you wrap your packages, enclose a gift receipt so recipients can easily return the item, if necessary.

·         Get to the post office ASAP. If you plan to mail any packages, it’s best to do so as soon as your shopping is done. The U.S. Postal Service and other shipping companies only get busier and busier as the holidays draw near.

Here’s to a more peaceful season!

The holidays shouldn’t be stressful, but they certainly can be if you wait until the last minute to finish your shopping. We hope these tips will help make your preparations a bit more pleasant—and give you more time to celebrate with your loved ones!

Baby Boomers on the Move: What to Consider If You Are Planning to Relocate

You’ve worked hard and are nearing retirement age. Like many other baby boomers, with your kids out of the house and a surplus of empty space and time, you may be thinking about moving. To help you make up your mind—or make your transition go as smoothly as possible—we’ve compiled this list of tips.

Is downsizing right for you?

Downsizing in retirement may seem like a pretty clear-cut decision, but before taking any action, consider the following:

·         Can you take care of your current home? Even if the answer is no, moving is not the only solution. Other options include renovations to make your house more accessible, hiring help to do housework, or having a family member or friend move in with you.

·         Can you get income from your current home? If the only reason you are selling your home is to generate income for retirement, you may want to mull over these options:

o   Home equity loan or line of credit. Put your home up as collateral and receive a loan in return, possibly to finance home improvements.

o   Reverse mortgage. With this option, you take a mortgage out on your home, and, in return, the mortgage holder gives you cash until you decide to sell. Please note: Because reverse mortgages can be costly, they should be used as a last resort, and proceeds from reverse mortgages should never be used for investing in securities.

o   Renting unused rooms. Rent any unused rooms in your home to generate extra cash flow.

Money matters—searching for a lower cost of living

In the past, the main reason that retirees planned to move was climate, as they hoped to enjoy warmer weather more often. But in the wake of recent economic events, the cost of living and health care expenses have moved to the top of the list for why baby boomers want to move. If this is the case with you, you may want to weigh the following information and possibilities:

·         Paying down debt. Selling your current home and purchasing a more affordable one at a lower rate of interest can put extra cash in your pocket. Use the money to pay down debt or build up savings.

·         Tax-free gains. Married couples can exclude up to $500,000 in capital gains from the sale of their primary home ($250,000 for single sellers). In order to do so, you must have owned and used the home for at least two out of the last five years and may not have excluded a gain from the sale of another home within the past two years.

·         Cost of living. Research income, sales, property, estate, and inheritance taxes. Don’t be fooled by a low number for one category—typically, another tax will be higher to compensate for it. Property taxes are usually the most costly, so pay special attention to them. Please note: Tax credits and homestead exemptions may be available. Talk to your tax advisor before making any decisions.

o   Compare cost of living data across the country at www.bestplaces.net/col/.

o   Compare state and local taxes at www.retirementliving.com/taxes-by-state.

o   Find out which states are the most tax friendly at www.kiplinger.com/tools/retiree_map/.

·         Health care expenses. Find the prices and terms for medical facilities and insurance providers by checking www.healthcare.gov and www.medicare.gov.

·         Less space means less stuff means lower expenses. When moving to a smaller home, you can’t take all of your belongings with you. You may be able to earn a substantial amount of cash on the sale of items that you no longer need or want. You may also be able to cut future spending if you move to a smaller home because you will have less space to fill.

·         Time is money. Moving to a smaller residence means significantly less time spent cleaning—and more time for leisure or work. A smaller home can also release you from the responsibility of hosting family gatherings, saving time on preparation and cleanup.

·         Utilities. A smaller house means less money spent on heating, cooling, and electricity.

Looking to stay active and involved

Many baby boomers intend to continue working past age 65. But even if this is not the case, they still want to stay involved. For these reasons, college towns have become an extremely popular choice for retirees. If you are hoping to stay active in retirement, consider:

·         Recreation. Does the community offer arts, cultural, and outdoor activities? What about fitness classes, golf courses, beaches, sports leagues, or clubs to keep you busy?

·         Proximity to services. How easy is it to get to the nearest major city, airport, hospital, or gym? Are the public transportation services adequate? How far are you from family and friends? If you plan to continue working, how long would your commute be?

·         Job opportunities. If you are part of the 73 percent of baby boomers who plan to work during retirement, check out this list of employment websites: www.retirementliving.com/jobs-for-seniors.

·         A condominium. This housing option offers the benefits of a community of other retirees, organized activities, and home maintenance. Beware, however, of the monthly assessment fees that cover maintenance services.

Moving is never simple, but it can help you simplify your life. By following the tips offered here, you may find the perfect place to relax and enjoy your well-deserved retirement. Be sure to talk to your financial advisor about any questions you have related to moving, so you can better prepare for this exciting transition.

What You Need to Know About Health Care Reform

What You Need to Know About Health Care Reform
Presented by Tim Traub

As you’re no doubt aware, big changes are under way in the health care industry. In the coming months, you’ll hear a lot more about the Patient Protection and Affordable Care Act, most aspects of which are slated to take effect in 2014. Although recent negotiations in Congress could delay the law’s implementation, many Americans are still wondering how this complex legislation may affect them.

Debunking some common myths

The Patient Protection and Affordable Care Act, commonly known as the Affordable Care Act or Obamacare, is intended to expand access to health care, remove certain limits, and protect customers. Below, we debunk some common misunderstandings so that you can better understand the upcoming changes under the new legislation.

Myth: The new law cuts Medicare’s primary benefits.

Fact: The legislation adds benefits, such as annual wellness exams and preventive screenings, incorporated at no cost into Medicare Part B.

·         As federal subsidies are reduced for Medicare Advantage plans, insurers may look to cut expenses by scaling back on extra services, such as dental coverage, vision care, or gym memberships.

·         Other insurers may increase premiums or co-pays.

·         One change that may occur in the future is that higher-income Medicare subscribers may pay higher premiums. Premiums for Parts B and D are based on income; however, according to the new legislation, income levels will not be readjusted until 2020.

o   Currently, the income level starts at $85,000 for a single person and $170,000 for married couples. If you are close to these income levels in retirement, you might want to consider diversifying a portion of your retirement income portfolio by converting to a Roth IRA because tax-free withdrawals from a Roth IRA are not added to the Medicare premium income level calculation.

Myth: Medicare will be replaced with a national medical program.

Fact: Health care reform is not a national medical program or universal health care, but those who do not currently have health care insurance should find it easier to get and keep coverage. Ultimately, the intention of reform is to give consumers the opportunity to choose their plans and plan providers.

·         Starting in 2014, it is intended that state- and federal-established insurance exchanges will provide consumers and small businesses an avenue for comparing the benefits and costs of a range of private insurance health plans. Insurance purchased through the exchanges cannot be denied due to preexisting conditions and is guaranteed renewable.

·         Open enrollment for insurance purchased under the Health Insurance Exchange (HIE) marketplace begins on October 1, 2013, for coverage starting on January 1, 2014.

Myth: Americans are required to buy health insurance.

Fact: Technically, this is not true, but by 2014 almost all U.S. citizens and legal residents (with certain exceptions) must either have health insurance coverage or be prepared to pay a tax penalty.

·         Premiums for low- and middle-income individuals who buy insurance through the new exchanges will be subsidized based on their household income. Medicaid will remain the primary health care program for the poor.

·         The amount of the insurance subsidy will vary according to income, family size, and plan type.

o   Families with incomes up to 400 percent of the federal poverty level who purchase coverage through an HIE will be eligible for a reduction in premium.

o   Families with incomes less than 250 percent of the federal poverty level will qualify for lower deductibles and co-pays.

o   People will not be required to buy health insurance if the least expensive plan available costs more than 8 percent of their income.

Myth: Small employers are required to subsidize their employees’ health insurance.

Fact: This is not the case, although small business owners are encouraged to provide access to affordable coverage.

·         Many businesses with fewer than 50 full-time employees qualify for tax credits based on their contributions to employees’ health insurance. The smaller the business and the lower the average wage, the higher the potential tax credit. In 2014, the tax credit will increase.

·         Companies with 50 or more employees will be subject to fines for not offering affordable insurance that covers minimal essential health care. (On July 1, 2013, the Obama administration announced that it was giving employers another year to comply with the new rules.) The legislation considers health insurance affordable if 60 percent of health care expenses are paid by the plan and an employee pays no more than 9.5 percent of household income toward the family’s coverage.

·         If your employer provides you with access to health insurance, very little may change. Employer-provided health insurance plans in effect prior to March 23, 2010, are grandfathered under the new law, and some new consumer protections apply to these plans. For example:

o   Starting in 2014, these plans cannot have any annual or lifetime limit on benefits nor exclude children due to preexisting conditions.

o   Insured individuals cannot lose coverage due to illness or medical conditions, and dependent coverage covers adult children up to age 26 (unless the child has coverage available through his or her own employer).

o   In addition, making a claim for a seriously ill employee cannot increase premiums for the employer’s group.

Myth: All taxpayers will feel the tax bite from health care reform.

Fact: The brunt of the taxes associated with reform will impact the highest income taxpayers. Workers with annual adjusted gross income (AGI) above $200,000 ($250,000 if married) will see their payroll tax increase 0.90 percent and may see some investment income taxed an additional 3.8 percent. Some taxpayers will also pay the cost of the new health care reform through the revised threshold for claiming medical expense deductions.

·         Starting in 2013, only qualified expenses that exceed 10 percent of AGI are eligible for deduction, up from the previous 7.5-percent threshold.

·         In 2018, a new 40-percent tax will take effect for insurers that offer “Cadillac” health insurance plans. For the purposes of the health care bill, Cadillac health care plans are defined as those with premiums of at least $10,200 for single coverage and $27,500 for family plans.

o   Although this new tax will be imposed on the insurance companies, the costs will likely be passed along to the insured. Commentators predict that high-deductible plans will become more popular in order to keep certain insurance plans from being categorized as Cadillac options.

o   Deductible contributions to health savings accounts (HSAs) may become more popular as a way to bring down taxpayers’ AGI. (Deductible contributions to HSAs are only available to taxpayers who maintain a high-deductible health insurance plan.)

·         Tax-exempt bonds, tax-deferred annuities, cash-value life insurance, charitable remainder trusts and Roth conversions may become more attractive to investors in the highest tax brackets to help lower taxable income.

All in all, the health care reform law is intended to expand access, remove certain limits, and protect consumers. Feel free to contact us if you would like to discuss your current health care plans or how the new legislation may affect your financial situation.

This material has been provided for general informational purposes only and does not constitute either tax or legal advice. Although we go to great lengths to make sure our information is accurate and useful, we recommend you consult a tax preparer, professional tax advisor, or lawyer. Municipal bonds are federally tax-free but may be subject to state and local taxes, and interest income may be subject to federal alternative minimum tax (AMT). The purchase of bonds is subject to availability and market conditions. There is an inverse relationship between the price of bonds and the yield: when price goes up, yield goes down, and vice versa. Market risk is a consideration if sold or redeemed prior to maturity. Some bonds have call features that may affect income. Annuities are long-term, tax-deferred investment vehicles designed for retirement purposes. Guarantees are based on the claims-paying ability of the issuer. Withdrawals made prior to age 59½ are subject to a 10-percent IRS penalty tax, and surrender charges may apply. Gains from tax-deferred investments are taxable as ordinary income upon withdrawal. The investment returns and principal value of the available subaccount portfolios will fluctuate so that the value of an investor’s unit, when redeemed, may be worth more or less than the original value. Optional features available may involve additional fees. Cash-value life insurance is a type of life insurance policy that both accumulates value during the policyholder’s lifetime and pays out upon the policyholder’s death. The interest and earnings on the policy are typically not taxable, and while some accrue a cash value that can be borrowed against, certain types may not allow you to withdraw from your cash value at all. Whole life, variable life, and universal life are all types of cash-value life insurance.

IRS CIRCULAR 230 DISCLOSURE:

To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed herein.