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Stocks, bonds and mutual funds have had a rocky start to the year. The S&P 500, a broad measure of the United States stock market, was down 4.6% over the first quarter. Mutual funds holding stocks and bonds have also lost value. These losses are jarring following an outstanding 2021, where the S&P 500 gained just under 30%. Why the exhale? The balloon was blown up too quickly. Understanding why your IRA or 401(k) has suddenly lost value requires taking a step into the past.
- Persistent Inflation – A combination of COVID-caused supply chain issues, low unemployment, wage increases and global political uncertainty is clobbering inflation. Rising prices for food (6.3% the last 12 months ending December 2021), energy (29.3%) and all other items (5.5%) have taken their toll on budgets. Recent unemployment numbers are 3.6%, lower than pre-COVID levels. Fewer Americans searching for jobs, coupled with pandemic driven child-care hurdles, have pushed wages higher. Higher wages couple with higher input prices (lumber, steel, commodities, energy), pressuring producers to raise prices. These prices ripple down the supply chain to stores nearby. Inflation has caused the market to pause and raised questions about sustainability and fundamental assumptions around growth.
- Are We Back to Work Yet? – The COVID-19 omicron variant threw a meaningful hurdle into America’s return to work. Plans to phase back in in-person workforces, employees finding a groove working from home, commuting and traveling were all affected. Sudden economic shifts for any reason add to volatility and, in this case, challenge recovery estimates from last year. Equities have stumbled as future revenue, business model and sales projections have been challenged.
- The Federal Reserve is Raising Interest Rates to Help Combat Inflation – The Federal Reserve is a governing body for the United States banking system. It has three primary goals: maximize employment, stabilize prices and moderate long-term interest rates. Prices have been anything but stable. The Federal Reserve is raising rates on money it lends to member banks, which will in turn raise rates companies and retail investors are charged when they borrow. Ratcheting up rates will slow down the economy and result in additional adjustments to profitability, revenue and business model expectations. These adjustments have pushed stock prices lower.
- Bond Prices Fall When Interest Rates Rise – An economic concept called duration explains the relationship between interest rates and bond prices. Duration can be tricky – take an example of a car company borrowing money. The company plans on using the money to build a new manufacturing facility, and plans on paying it back over 10 years. The company could sell bonds, borrowing money from consumers and paying them back some type of interest every year. At the end of 10 years, the company would pay back the initial loans.
- Uncertainty Feeds Volatility – Stock and bond markets thrive on knowing what will come next. Predictable stability helps companies forecast, make strategic decisions and execute business plans. Stability helps predict future revenue and income, which provides a framework for equity prices. Uncertainty constantly challenges this framework and casts a deeper shadow on assets with risk. More volatile assets, such as bitcoin and tech stocks, have been subject to steeper losses than their more predictable contemporaries.
Dependent Care FSAs
Offered through many employers, dependent care FSAs allow you to make pre-tax contributions to pay for qualified childcare expenses, which include daycare, preschool and summer day camps. If you choose this route, your contribution amount isn’t subject to federal or state income taxes, nor is it subject to withholdings for Social Security and Medicare. You have to choose whether you’ll have a dependent care FSA during open enrollment or within 30 days of a dependent care event, such as the birth of a baby or adopting a child. One thing to note with these is that you must use the funds by the end of the year, or you’ll lose them. With the astronomical costs of childcare right now, that shouldn’t be a problem. However, you should check with your employer to see if they allow any rollover from the previous year. While the American Rescue Plan Act, passed in March 2021, raised the contribution limits to dependent care FSAs for the 2021 plan year, the limits are back to $5,000 for individuals or married couples filing jointly and $2,500 for those married filing separately. One way to plan for how much you’ll elect to contribute is to look at what you paid on care costs last year and ensure you contribute enough to cover that. If you find that you didn’t elect enough, you might have the option to change the amount mid-year. You might also able to carry over more from last year’s dependent care FSA and you may have a longer grace period to use those funds from 2021. Check with your employer on both of those points.Reactive Planning with the Child and Dependent Care Credit
The Child Tax Credit advanced payments went to nearly 61 million families in 2021. But it is not to be confused with the Child and Dependent Care Credit. The Child and Dependent Care Credit provides a tax credit for taxpayers to help pay for the cost of care for children and dependents that is calculated based on your income and a percentage of care costs that you pay so that you can work or go to school. The American Rescue Plan increased the Child and Dependent Care Credit expense cap to $4,000 for one child or dependent, and $8,000 for two or more children or dependents. The American Rescue Plan Act upped income threshold and the maximum percentage of eligible child care expenses for the 2021 tax filing year. The maximum percentage of eligible child care expenses has increased to 50%, up from 35%, even for taxpayers with an adjusted gross income of up to $125,000. According to the IRS, for 2021 only, you can use expenses up to $8,000 for one qualifying individual and $16,000 for two or more qualifying individuals to calculate the credit. The new thresholds and the percentage of qualifying expenses:- If AGI is less than $125,000, you get 50% of the qualifying expense up to a cap ($8,000 for one qualifying individual and $16,000 for two qualifying individuals).
- If AGI is between $125,000 and $185,000, you get between 20% and 50% of the qualifying expense.
- If AGI is between $185,000 and $200,000, you get 20% of the qualifying expense.
- Taxpayers with an AGI over $438,000 aren’t eligible for this credit.
- Your dependent was a child under age 13
- Your spouse was physically or mentally unable to care for themselves and lived with you for more than half of the year
- An individual who was physically or mentally unable to care for themselves and lived with you for more than half the year and was either your dependent or could have been your dependent, but received a gross income of $4,300 or more or filed a joint return
Connect with Your Professional
You cannot use the dependent care FSA and the Child and Dependent Care Credit at the same time. You have to pick a lane. And the lane you pick is dependent on your unique situation and circumstances. Call your financial professional today to see which one might be more beneficial to you. [post_title] => Planning for the Rising Cost of Dependent and Child Care [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => planning-for-the-rising-cost-of-dependent-and-child-care [to_ping] => [pinged] => [post_modified] => 2022-03-04 09:08:41 [post_modified_gmt] => 2022-03-04 15:08:41 [post_content_filtered] => [post_parent] => 0 [guid] => https://carsondemo.com/insights/blog/planning-for-the-rising-cost-of-care/ [menu_order] => 0 [post_type] => post [post_mime_type] => [comment_count] => 0 [filter] => raw ) [2] => WP_Post Object ( [ID] => 64654 [post_author] => 180930 [post_date] => 2021-03-24 10:58:12 [post_date_gmt] => 2021-03-24 16:58:12 [post_content] => Many of us all but ignore our retirement accounts for much of our working lives. We look at a pay stub and have a vague sense of the “minuses:” Social Security, insurance, taxes. But the IRA is one of the most powerful retirement savings tools available to us, and so it warrants our attention. Its variant, the Roth, also offers dynamic savings opportunities, and which one of these works for you depends on your financial plan and a variety of other factors. Let’s look at the basics of the traditional versus Roth IRA to see which one might work best for your wealth journey. The differences range from glaring to subtle, and the more intentional you are about the choice, the more you can end up saving in the long run.The Basics
First, let’s define terms. The IRA, or individual retirement account, was created by the U.S. government to encourage saving for retirement and curb financial distress among retired individuals. Because they are intended for retirement, you’ll get penalized in most cases for accessing the funds before age 59.5. Both the Roth and traditional IRA have a contribution limit of $6,000 per year, with a $1,000 catch-up contribution if you are over age 50 (in 2020-21). The contribution deadline to any kind of IRA typically mirrors the deadline to file your tax return. In most years, you can contribute to your IRA until April 15, for example. Traditional IRAs were introduced during the Employee Retirement Income Security Act of 1974 (ERISA) and first gained widespread popularity in the 1980s. Roth IRAs were introduced in 1997, named for Senator William Roth. Let’s look at the basic differences between these two versions of the IRA.How do the Taxes Work?
The most noticeable difference between a traditional versus Roth IRA is the way the taxes work. Contributions to traditional IRAs are made with pre-tax dollars, and growth is tax-deferred. That means the gains are taxed upon withdrawal. So, the taxman knocks, but he knocks later. If you have a Roth IRA, you pay the taxman upfront, and he essentially never comes knocking. The growth is tax-free and withdrawals in retirement are almost always tax-free. You’ve basically done your tax work upfront, so the IRS doesn’t care how much it grows – it’s your money at that point. Generally, those who are in a high tax bracket today typically benefit more from a traditional IRA than those in a lower tax bracket. And those who are in a low tax bracket today typically benefit more from a Roth IRA than those in a higher tax bracket.Two Plans, Two Scenarios
Let’s look at two scenarios in which both plans are advantageous for certain reasons. Each financial journey is unique, so a blanket answer – ”always this, never this” – won’t work for IRAs or other financial choices.Traditional IRA Scenario
In the first scenario, we have an investor in the wealth-building phase who is in the 24% tax bracket and not participating in an employer-sponsored plan. She determines she can put $6,000 into her traditional IRA and reduces her current income from $105,000 to $99,000 saving her $1,440 in taxes. When she reaches retirement, her taxable income reduces greatly to $30,000 and places her in the lower tax bracket of 12%. At this time she needs additional income and decides to pull it from her traditional IRA. If she were to take a $6,000 distribution, she would pay $720 in taxes. That's half of what she would have paid on the $6,000 if she decided not to contribute to her traditional IRA.Roth IRA Scenario
In the second scenario, we have an investor early on in his career. He’s single and on the high end of the 12% tax bracket earning $35,000 a year. He starts a Roth IRA, and contributes the max $6,000, paying $720 in taxes right away. After a long successful career, he retires and has a fixed income of $75,000 a year, placing him firmly in the 22% tax bracket. In the event he needed additional income, he could take a distribution from his Roth IRA and pay $0 in taxes since he already prepaid his tax bill when he made his contribution. These are simplified scenarios. Everyone's situation is unique, and there may be factors other than your tax bracket that could influence which account is right for you. Learn more: Use our 401(k) calculator to determine how your account compares to what you may need in retirement.How do I Get Access to the Money?
As with any financial instrument, there are parameters on access to the funds. Remember, the IRS is trying to encourage saving for retirement, so they don’t want you to take the money early.Traditional IRA
We’ve already discussed the magical age of 59.5, which applies to all IRAs. If you take your money out before then from a traditional IRA, not only will you pay taxes on the contributions and the growth, but you’ll also pay a 10% early withdrawal penalty tax. That’s essentially akin to jumping a few tax brackets on that money – not a situation you want to be in!Exceptions
There are exceptions to these penalties. You can possibly take an early withdrawal if you qualify for a hardship distribution. You can also take $10,000 out the first time you build or buy a home, and your spouse can take that distribution as well. These distributions and a handful of others can help you avoid the early withdrawal penalties.Roth IRA
One of the perks of a Roth is the money is considered yours because it’s after-tax (as long as you take it at the correct age). The IRS has already taken their part of it, so they leave it alone. There are a few catches of course.5-Year Rule
Although contributions to a Roth are always accessible, you have to wait five years after opening a Roth before you can withdraw your earnings without fees. Keep in mind that this is five years from when you start your first Roth account. You could start an account, wait the five years, start another one and take from those earnings as soon as they arrive.59.5
Age 59.5 is the magical no-penalty withdrawal age for traditional and Roth IRAs. With a Roth, your earnings on your contributions will be taxed if you withdraw them before this age. So if you deposited $6,000 and it grew to $10,000 and you withdrew that full amount, you’d pay taxes on the $4,000. After age 59.5 there’s no penalty.Restrictions and Parameters
When the IRS gives you breaks or privileges with a financial vehicle, you can be sure there are restrictions on it as well. We’ve already discussed the contribution limit for both IRA types – $6,000, or $7,000 if you’re over age 50 (for 2020 and 2021).Restrictions for a Traditional IRA
There are no income limits to be able to contribute to a traditional IRA, but your tax deductions run into limits if you or your spouse are covered by a 401(k) at work. For 2020-21, if you make over $66,000 a year (MAGI), you start to reach the phaseout and will only receive a partial deduction for contributions. After your income reaches $76,000, you will no longer receive any tax deduction. For married filing jointly, phaseout starts at $105,000 and the deduction disappears altogether at $125,000 in income.Restrictions for a Roth IRA
The incredible financial planning opportunity available with a Roth comes with income restrictions. Essentially, if you make too much money, you can’t start a Roth account. For 2021, you hit the phaseout threshold at $125,000 and the ceiling is $140,000 for a single person. For married filing jointly, the phaseout starts at $198,000 and ends at $208,000. There are strategies such as the Roth conversion and the backdoor Roth conversion to work creatively with Roth limitations.Powerful Tools in the Right Hands
As you can see, the IRA is a powerful savings vehicle for retirement and can put your money to work for you rather than gathering only dust in the bank. Whether you go with traditional versus a Roth IRA is a matter of weighing the details against your life. Talk with your financial advisor about what works for your place in the wealth journey and your particular dreams for retirement – there’s no generic answer to that question. The important thing is to get started! Get in touch today, and let’s see what works for you! Make an Appointment! Distributions from traditional IRA’s and employer sponsored retirement plans are taxed as ordinary income and, if taken prior to reach age 59 ½, may be subject to an additional 10% IRA tax penalty. A Roth IRA offers tax free withdrawals on taxable contributions. To qualify for tax-free and penalty free withdrawal or earnings, a Roth IRA must be in place for at least five tax years, and the distribution must take place after age 59 ½ or due to death, disability, or a first time home purchase (up to a $10,000 lifetime maximum). Depending on state law, Roth IRA distributions may be subject to state taxes. [post_title] => Traditional or Roth – Which IRA Works for You? [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => traditional-or-roth-which-ira-works-for-you [to_ping] => [pinged] => [post_modified] => 2021-12-14 14:39:07 [post_modified_gmt] => 2021-12-14 20:39:07 [post_content_filtered] => [post_parent] => 0 [guid] => https://carsondemo.com/insights/blog/traditional-or-roth-which-ira-works-for-you/ [menu_order] => 0 [post_type] => post [post_mime_type] => [comment_count] => 0 [filter] => raw ) [3] => WP_Post Object ( [ID] => 64183 [post_author] => 12175 [post_date] => 2020-12-23 15:13:33 [post_date_gmt] => 2020-12-23 20:13:33 [post_content] => [et_pb_section fb_built="1" _builder_version="3.22"][et_pb_row _builder_version="3.25" background_size="initial" background_position="top_left" background_repeat="repeat"][et_pb_column type="4_4" _builder_version="3.25" custom_padding="|||" custom_padding__hover="|||"][et_pb_text _builder_version="3.27.4" background_size="initial" background_position="top_left" background_repeat="repeat"][vc_row][vc_column][vc_column_text]By Jamie Hopkins, Director of Retirement Research at Carson
President Trump has signed the new $900 billion economic relief and spending bill passed by Congress. While most of the focus has been on a second round of relief payments to most Americans, there is plenty more in the 5,000-plus pages of the stimulus package.
The goal of this bill is to continue to offer assistance to businesses struggling during the COVID-19 pandemic, provide extra unemployment benefits to those unable to find work, and to stimulate an economy that has persevered through much volatility over the past 10 months.
Here are 17 takeaways from the new legislation that you should know:
Individuals
1. Relief Payments
Most of the focus of the bill has been on the $600 relief payments that will be given to most Americans. The $600 is half of the amount allocated to adults by the CARES Act in March. The payment is $600 per individual, so $1,200 for married couples and $600 for each dependent child. Under the CARES Act, it was $500 for each dependent child. Dependent adults were not included in the new bill.
Not every American is eligible to receive the full $600, however. You are eligible if you make less than $75,000 as a single tax filer or less than $150,000 as a married couple filing jointly. If you earned more than the threshold in the 2019 tax year, then you can receive a smaller payment, however the phaseout thresholds are capped at $87,000 and $174,000, respectively.
These payouts are not taxable, and if you qualify in 2020 despite not qualifying in 2019, it will become a tax credit for 2020 and you will receive it when you file.
2. Additional Unemployment Benefits
Originally, the CARES Act provided added unemployment benefits through four main provisions, which increased unemployment payments, extended benefits to those who lost them and helped part-time workers who may not have qualified for state unemployment insurance benefits. Here’s a look at those three programs and what the new bill does to continue them:
- Federal Pandemic Unemployment Compensation: The CARES Act provided $600 per week in added unemployment benefits, but that provision expired at the end of July despite continued high unemployment. In response, President Trump signed an executive order to extend the program by offering $300 per week instead of $600, along with $100 from states. As funding for that program ended, the new legislation takes over by providing $300 a week in unemployment benefits.
- Pandemic Unemployment Assistance: The Pandemic Unemployment Assistance program was created to help part-time, freelance and self-employed workers who may not have qualified for state unemployment insurance benefits. Under the new bill, this program is extended for 11 weeks, with a stipulation that the applicants provide proof of previous employment or self-employment within three weeks of applying. The maximum number of weeks is now set at 50. Generally speaking, the PUA program has been extended to March 14, 2021. Those approved for PUA by March 14 will be able to continue for another four weeks.
- Pandemic Emergency Unemployment Compensation: The Pandemic Emergency Unemployment Compensation provides 13 additional weeks of benefits if a worker exhausts state benefits. However, the program expired on December 26, 2020. The new bill will continue this program through March 14, 2021. The PEUC program has also been extended to provide a total of 24 weeks of benefits. Again, those approved before March 14 can continue receiving benefits under the program for four additional weeks.
- Mixed Earner Unemployment Compensation: Under the new legislation, some seeking unemployment benefits who had mixed income between self-employed and traditional W-2 employment income could be eligible for an additional $100 on top of the FPUC $300 if they had at least $5,000 of qualifying annual self-employment income, 1099, that they lost. This extra benefit would last until March 14, 2021.
3. Vaccine Distribution
The bill sets aside $20 billion for individual coronavirus vaccinations and $8 billion for vaccine distribution. The CARES Act addressed the cost of COVID-19 testing, and this seeks to provide similar aid for those getting vaccinated.
4. Flexibility with FSAs
Typically, a flexible spending account can be used as a tax-advantaged vehicle to meet certain health care expenditures each year. However, FSAs are generally a “use it or lose it” account, which means expenses and distributions need to occur by the end of the year. The new bill would allow for any unused FSA funds to be rolled over from 2020 to 2021 and allow 2021 funds to be rolled over to 2022.
These rules apply to both health- and dependent-care FSAs. The age threshold for dependent-care FSAs was temporarily extended to under 14, up from 13 to account for the extension.
Lastly, the new bill allows for FSA plans to permit a prospective change in election amounts for both health- and dependent-care FSAs mid-year in 2021. This means some companies will have to decide if they will hold a mini open-enrollment period in 2021.
5. Deductible Medical Expenses
Additionally, the deductibility of medical expenses as an itemized expense is normally set at expenses above 10% of adjusted gross income but was lowered to 7.5% as part of the CARES Act for 2020 and was extended for 2021. As such, individuals can deduct unreimbursed medical expenditures that exceed 7.5% of AGI in 2021. This is an important note as you prepare your 2020 taxes.
6. Eviction Memorandum Continued
The original Eviction Memorandum from the Centers for Disease Control and Prevention came in September, ordering a stoppage on evictions for failure-to-pay cases if the tenant made less than $99,000 annually as a single person or $198,000 as a couple. This memorandum, which left it up to the evicted tenant to file a motion with a judge, was set to expire on December 31, 2020. That date has been extended to January 31, 2021.
Businesses
7. Continuation of the Paycheck Protection Program
Of the $900 billion bill, $284 billion is pegged for the Paycheck Protection Program, the forgivable loan program created under the CARES Act to help small businesses. Many businesses were shut out of the original funding window, which prompted Congress to open a second round of loans, which expired in August.
The new bill also clarifies much of the PPP process – which small business owners (and tax professionals) desperately needed – and set a quick timeframe for the Small Business Administration to create new regulations. Additionally, the bill expanded covered expenses for PPP loans, including some language allowing for disaster relief, which could open up the programs more broadly for remaining funds in the future.
8. PPP Deduction Clarity
There was a debate brewing over whether small businesses could deduct expenses paid with the Paycheck Protection Program funds received. In a big win for business owners, Congress declared that those expenses are deductible and the loan is not included in gross income.
In addition, the Economic Injury Disaster Loans are also tax-free and expenses can be deducted.
9. PPP Loan Simplification
For businesses that may need a smaller loan, the process just got a lot easier. For loan applications under $150,000, a business will now need to submit a certification to the lender with just three things: the number of employees you are able to keep due to the loan, how much of the loan will be used to cover payroll costs, and an attestation that you’re going to do what you say you will with the money (and that you’ll keep records to prove it).
This simplification is designed specifically to help small businesses with the hope that they continue to retain employees despite pandemic-related struggles. Full information on loan forgiveness eligibility and required costs allocated to employee payroll is available on the U.S. Small Business Administration website.
In addition, the SBA has been charged with creating a one-page forgiveness document and also restricted the lender from asking for any more information than is required on the one-page document for forgiveness for these $150,000 and under loans. This document must be public within 24 days of the passage of the bill.
The easier forgiveness option could encourage most businesses that took out PPP loans to wait to file until the SBA delivers this one-page document.
10. Expansion of PPP Loan Program
Under the new bill, PPP loans can be used to cover additional eligible expenses, which include business operational expenses; property damage costs from public disturbances; costs related to protecting employees in alignment with national or local health mandates; supplier costs that were essential to business operation; and group life, disability, dental and vision insurance.
The CARES Act provided coverage for only payroll, mortgage or rent, and utilities. These are still covered under the new bill.
In addition, some businesses will be eligible for a second PPP loan. While Congress expanded the application timeline and allocated more money to the program after the CARES Act, the new bill allows for businesses with fewer than 300 employees to apply for a second PPP loan. The business must have suffered a 25% drop in at least one quarter’s revenue from 2019 to 2020.
The maximum for a second loan is $2 million, whereas the first round of loans allowed up to $10 million. Certain companies, like hotels and restaurants, might be eligible for higher loan amounts than before as there was a cap on the PPP loan at 2.5 times average monthly payroll. Under the new bill, these companies can take up to 3.5 times but are still subject to the $2 million cap. Other provisions do apply, so if you’re interested in a second PPP Loan, check with your financial advisor.
11. Employee Retention Tax Credit Expanded
Under the CARES Act, the Employee Retention Tax Credit (ERTC) could not be used if you received a PPP Loan. However, under the new bill, businesses can receive this credit as long as the funds are used for wages not paid with PPP funds. With this new rule and the expansion of the credit’s coverage, it becomes an attractive option for small businesses.
The ERTC covers 70% of qualified wages each quarter, a bump from the original 50% coverage, and the end date was pushed to July 1, 2021, from January 1, 2021. While the CARES Act capped coverage at $10,000, the new bill increases the credit to $10,000 per quarter. In essence, this changes the tax credit from $5,000 to $14,000 per employee, which is a significant tax benefit for 2021. However, you must still see a drop in gross receipts from 2020 by 20% and have fewer than 500 employees to qualify, which is up from the 100 employee limit in the 2020 version.
12. Economic Injury and Disaster Loan Funding
While most business owners elected to take the PPP loan under the CARES Act, the previous legislation also created the Economic Injury and Disaster Loan program through the SBA. This program did not limit the use of funding to payroll, mortgage and utilities like the PPP program did. The EIDL program will receive $20 billion for targeted grants under the new bill.
13. Extension of Repayment Period for Deferred Payroll Taxes
The CARES Act allowed certain companies to defer their side of the payroll tax. Certain employers could defer payroll taxes on their side from March 27, 2020, to December 31, 2020. By the end of December 31, 2021, 50% was due, and the remaining 50% was due by the end of December 31, 2022.
In August 2020, President Trump signed a memorandum allowing employee deferral of the payroll tax for Social Security as long as that employee’s bi-weekly pay period, pre-tax wages were less than $4,000. Some employers set this up and others did not, in part because it was still a deferral of the tax, and it was expected to be due by the end of April 2021.
The new bill extends the repayment period for the employee payroll tax deferral to December 31, 2021. Penalties and interest on the deferred tax liability would not begin to accrue until January 1, 2022.
14. Allocated Funds to Businesses in Underserved Communities
The new bill provides $9 billion to Community Development Financial Institutions and Minority Depository Institutions. There was a problem in the first round of PPP loans as many smaller businesses were shut out of the first round of funding. This provision is meant to allocate money to business owners of color who may not have the same access to resources.
15. Business Meal Expense
The Tax Cuts and Jobs Act reduced the ability to deduct certain business expenses. One of these expenses was business meals. In light of the COVID-19 impact on restaurants, the deduction restriction was lifted, allowing for business meals with clients to be 100% deductible in 2021 and 2022, as opposed to the current 50% deductibility.
16. Transportation Aid
The new bill allocates $45 billion to the transportation industry, which has been hit extremely hard by the pandemic. It expands CARES Act programs put in place that will help airline employees, transit workers, bus companies and more.
17. Aid for Entertainment Venues
The new bill also provides $15 billion in assistance for live entertainment venues, independent movie theaters, and other cultural organizations as many in-person entertainment activities took a major hit during the pandemic.
What’s Next
As businesses, individuals, local governments and more adjust to the new provisions, the main takeaway for most Americans is that you’ll likely be receiving another relief check, and there are added benefits if you are or become unemployed.
Meanwhile, much of the new bill is meant to help struggling small businesses stay afloat until the pandemic is under control.
The Biden Administration is set to take office in January with a focus on its first 100 days, which means we could see additional legislation start moving through Congress. How much of that legislation includes support or expansion of programs currently in place is yet to be seen.
The views stated in this piece are not necessarily the opinion of Cetera Advisor Networks LLC and should not be construed directly or indirectly as an offer to buy or sell any securities. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results.
This communication is designed to provide accurate and authoritative information on the subjects covered. It is not however, intended to provide specific legal, tax, or other professional advice. For specific professional assistance, the services of an appropriate professional should be sought.
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[/et_pb_text][/et_pb_column][/et_pb_row][/et_pb_section] [post_title] => 17 Things You Need to Know About the New Stimulus Package [post_excerpt] => Congress passed the new $900 billion economic relief and spending bill on Monday. While most of the focus has been on a second round of relief payments to most Americans, there is plenty more in the 5,000-plus pages of the stimulus package. [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => 17-things-you-need-to-know-about-the-new-stimulus-package [to_ping] => [pinged] => [post_modified] => 2021-06-17 15:37:59 [post_modified_gmt] => 2021-06-17 20:37:59 [post_content_filtered] => [post_parent] => 0 [guid] => https://carsondemo.com/insights/blog/17-things-you-need-to-know-about-the-new-stimulus-package/ [menu_order] => 0 [post_type] => post [post_mime_type] => [comment_count] => 0 [filter] => raw ) [4] => WP_Post Object ( [ID] => 62378 [post_author] => 158135 [post_date] => 2020-09-30 08:36:45 [post_date_gmt] => 2020-09-30 13:36:45 [post_content] => As a CPA, one of the questions that I have been getting more frequently is, “What is a donor-advised fund?” This is not surprising as the number of individual donor-advised fund accounts has grown by over 50% for the second year in a row, according to the National Philanthropic Trust’s 2019 DAF Report. Let’s explore how they work, why they are beneficial from a tax perspective, and some special charitable deduction rules that are new for 2020.How a Donor-Advised Fund Works
A donor-advised fund is a fund that you can make tax-deductible donations to, the donations can grow tax-free, and you can support your favorite charities now and in the future. You receive the tax deduction when you place the assets in the donor-advised fund, not when the funds are distributed out to the charity of your choice. You can place many types of assets into a donor-advised fund including cash, stocks and real estate. Most people donate appreciated stocks into the fund because of the added tax benefit. You can take a deduction for the fair market value of the stock (as opposed to your purchase price) if you’ve held the stock for a year and never recognize the gain on the stock. (You would have to recognize the gain on the stock if you sold it outright.) You can donate appreciated stock directly to a qualifying charity. Keep in mind some small charities don’t have the resources or experience to know how to handle a stock gift.How to Take Advantage of a Donor-Advised Fund’s Tax Benefits
Taking a tax deduction when you place your assets in the donor-advised fund is a powerful tax benefit. It’s strategic to time the deduction to coincide with a year that you receive a large bonus, sell a company, or have another extraordinary income event. You can take the deduction in the year you are in a higher tax bracket to help reduce your tax liability and front-load your donor-advised fund. The assets in the fund can fuel donations now and/or in the future. Even if you do not have a big income event, you may want to consider “bunching” your donations every couple of years. Many people who previously itemized their deductions are now using the increased standard deduction. For example, if you don’t think you will be over the standard deduction with your normal yearly gifting, you may want to donate 3-5 years’ worth of donations into the donor-advised fund in the current year. You can then take advantage of the itemized deduction in the high-donation year, take the standard deduction in the subsequent years, and disburse the funds to charities over the next three to five years ratably as you typically would on a yearly basis. Tax Picture with a Yearly Charitable Donation Tax Picture with a Front-loaded Donor-Advised Fund3 Things to Know When Considering a Donor-Advised Fund
1. Do Not Let the “Tax Tail” Wag the Dog. You should not let the tax benefits be the deciding factor in donating to a donor-advised fund. Once you make the donation, you cannot get the assets back out of the fund for personal use. 2. You Control the Fund. You decide the timing of the donations into the donor-advised fund and out of the fund to the charities of your choice. Donor-advised funds have been receiving some negative press as a black-hole that people use to receive a tax deduction, and then do not distribute the assets out to charity. The choice of when to distribute funds to charities is strictly up to you, the donor. You control your donor-advised fund, the investments inside the fund, and the distribution of the assets. 3. Know The Minimum Requirements. There are minimum donations required to establish a donor-advised fund, minimum subsequent donations, and minimum gifts to charity set in place by the major institutions that run donor-advised funds. There are also annual administrative fees charged to maintain the fund at the institution. Be sure to compare minimums and fees.Donor-Advised Funds and Special Deductions For 2020
The Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law in March 2020 and includes several modifications to the charitable giving laws for 2020. Donors who itemize their deductions can now give more to charity before reaching their adjusted gross income (AGI) limitation. Formerly set at 60%, the limitation for cash contributions to certain public charities has now been raised to 100% of an individual’s AGI for 2020. Any giving beyond this 100% limitation may be carried over and used in the next five years. This provision excludes giving to private foundations and donor-advised funds. This means that donors who exhaust the 60% limit with cash contributions to their DAFs in 2020 could make any additional donations outside their DAF and have those donations qualify for a deduction (up until reaching the 100% limit). Donors who take the standard deduction will be able to take a $300 above-the-line deduction for cash donated to a qualified nonprofit. Only people who don’t itemize can use this charitable deduction and only cash donations qualify. Donated stock, furniture, clothes and canned goods do not. Neither does giving to donor-advised funds or foundations. Reach out to your advisor today and have them help you with 2020 tax planning to maximize your tax deductions and the impact that you can have on the world around you. -- The opinions are those of the writer, and not the recommendations or responsibility of Cetera Advisor Networks LLC or its representatives. [post_title] => How to Take Advantage of Donor-Advised Funds and Special 2020 Tax Deductions for Donations [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => how-to-take-advantage-of-donor-advised-funds-and-special-2020-tax-deductions-for-donations [to_ping] => [pinged] => [post_modified] => 2020-09-30 08:36:45 [post_modified_gmt] => 2020-09-30 13:36:45 [post_content_filtered] => [post_parent] => 0 [guid] => https://carsondemo.carsonwealth.com/insights/blog/how-to-take-advantage-of-donor-advised-funds-and-special-2020-tax-deductions-for-donations/ [menu_order] => 0 [post_type] => post [post_mime_type] => [comment_count] => 0 [filter] => raw ) ) [post_count] => 5 [current_post] => -1 [before_loop] => 1 [in_the_loop] => [post] => WP_Post Object ( [ID] => 64865 [post_author] => 182131 [post_date] => 2022-04-25 12:16:15 [post_date_gmt] => 2022-04-25 17:16:15 [post_content] => By Craig Lemoine, Director of Consumer Investment ResearchStocks, bonds and mutual funds have had a rocky start to the year. The S&P 500, a broad measure of the United States stock market, was down 4.6% over the first quarter. Mutual funds holding stocks and bonds have also lost value. These losses are jarring following an outstanding 2021, where the S&P 500 gained just under 30%. Why the exhale? The balloon was blown up too quickly. Understanding why your IRA or 401(k) has suddenly lost value requires taking a step into the past.
- Persistent Inflation – A combination of COVID-caused supply chain issues, low unemployment, wage increases and global political uncertainty is clobbering inflation. Rising prices for food (6.3% the last 12 months ending December 2021), energy (29.3%) and all other items (5.5%) have taken their toll on budgets. Recent unemployment numbers are 3.6%, lower than pre-COVID levels. Fewer Americans searching for jobs, coupled with pandemic driven child-care hurdles, have pushed wages higher. Higher wages couple with higher input prices (lumber, steel, commodities, energy), pressuring producers to raise prices. These prices ripple down the supply chain to stores nearby. Inflation has caused the market to pause and raised questions about sustainability and fundamental assumptions around growth.
- Are We Back to Work Yet? – The COVID-19 omicron variant threw a meaningful hurdle into America’s return to work. Plans to phase back in in-person workforces, employees finding a groove working from home, commuting and traveling were all affected. Sudden economic shifts for any reason add to volatility and, in this case, challenge recovery estimates from last year. Equities have stumbled as future revenue, business model and sales projections have been challenged.
- The Federal Reserve is Raising Interest Rates to Help Combat Inflation – The Federal Reserve is a governing body for the United States banking system. It has three primary goals: maximize employment, stabilize prices and moderate long-term interest rates. Prices have been anything but stable. The Federal Reserve is raising rates on money it lends to member banks, which will in turn raise rates companies and retail investors are charged when they borrow. Ratcheting up rates will slow down the economy and result in additional adjustments to profitability, revenue and business model expectations. These adjustments have pushed stock prices lower.
- Bond Prices Fall When Interest Rates Rise – An economic concept called duration explains the relationship between interest rates and bond prices. Duration can be tricky – take an example of a car company borrowing money. The company plans on using the money to build a new manufacturing facility, and plans on paying it back over 10 years. The company could sell bonds, borrowing money from consumers and paying them back some type of interest every year. At the end of 10 years, the company would pay back the initial loans.
- Uncertainty Feeds Volatility – Stock and bond markets thrive on knowing what will come next. Predictable stability helps companies forecast, make strategic decisions and execute business plans. Stability helps predict future revenue and income, which provides a framework for equity prices. Uncertainty constantly challenges this framework and casts a deeper shadow on assets with risk. More volatile assets, such as bitcoin and tech stocks, have been subject to steeper losses than their more predictable contemporaries.
Planning for the Rising Cost of Dependent and Child Care
Traditional or Roth – Which IRA Works for You?
17 Things You Need to Know About the New Stimulus Package
How to Take Advantage of Donor-Advised Funds and Special 2020 Tax Deductions for Donations
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The Tax Cut and Jobs Act lowered taxes for many Americans and with the SECURE Act Roth IRAs became even more powerful as an estate planning vehicle to minimize taxes, so it’s a convenient time to take advantage of Roth conversions. However, Roth conversions can come with some issues. Before you engage in one, be aware of these common problems as it can be hard to undo the transaction.Conversions After 72
IRAs and Roth IRAs are both retirement accounts. It’s easy to assume Roth Conversions are best suited for retirement, too. However, waiting too long to do conversions can actually make the entire process more challenging. If you own an IRA, it’s subject to required minimum distribution rules once you turn 72, as long as you had not already reached age 70.5 by the end of 2019. The government wants you to start withdrawing money from your IRA each year and pay taxes on the tax-deferred money. However, Roth IRAs aren’t subject to RMDs at age 72. If you don’t need the money from your RMD to support your retirement spending, you might think, “I should convert this to a Roth IRA so it can stay in a tax-deferred account longer.” Unfortunately, that won’t work. You can’t roll over or convert RMDs for a given year. So, if you owe a RMD in 2020, you need to take it and you cannot convert it to a Roth IRA. Despite the fact you can’t convert an RMD, it doesn’t mean you can’t do Roth conversions after age 72. However, you need to make sure you get your RMD out before you do a conversion. Your first distributions from an IRA after 72 will be treated as RMD money first. This means, if you want to convert $10,000 from your IRA, but you also owe an $8,000 RMD for the year, you need to take the full $8,000 out before you do a conversion. Full article on ForbesFor a comprehensive review of your personal situation, always consult with a tax or legal advisor. Neither Cetera Advisor Networks LLC nor any of its representatives may give legal or tax advice."
"Distributions from traditional IRAs and employer sponsored retirement plans are taxed as ordinary income and, if taken prior to reaching age 59½, may be subject to an additional 10% IRS tax penalty. Converting from a traditional IRA to a Roth IRA is a taxable event. A Roth IRA offers tax free withdrawals on taxable contributions. To qualify for the tax-free and penalty-free withdrawal of earnings, a Roth IRA must be in place for at least five tax years, and the distribution must take place after age 59½ or due to death, disability, or a first time home purchase (up to a $10,000 lifetime maximum). Depending on state law, Roth IRA distributions may be subject to state taxes.
[post_title] => 3 Roth Conversion Traps To Avoid After The SECURE Act [post_excerpt] => Roth conversions can be a powerful tax and retirement planning technique. The idea behind most Roth conversions is to take money from an IRA and convert it to a Roth IRA. Essentially, you’re paying taxes today instead of paying taxes in the future. [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => 3-roth-conversion-traps-to-avoid-2 [to_ping] => [pinged] => [post_modified] => 2020-02-28 17:01:10 [post_modified_gmt] => 2020-02-28 22:01:10 [post_content_filtered] => [post_parent] => 0 [guid] => https://carsondemo.com/insights/news/3-roth-conversion-traps-to-avoid-2/ [menu_order] => 0 [post_type] => news [post_mime_type] => [comment_count] => 0 [filter] => raw ) [1] => WP_Post Object ( [ID] => 53316 [post_author] => 55227 [post_date] => 2020-01-28 10:38:21 [post_date_gmt] => 2020-01-28 16:38:21 [post_content] => By Jamie HopkinsRoth conversions can be a powerful tax and retirement planning technique. The idea behind most Roth conversions is to take money from an IRA and convert it to a Roth IRA. Essentially, you’re paying taxes today instead of paying taxes in the future.
The Tax Cut and Jobs Act lowered taxes for many Americans and with the SECURE Act Roth IRAs became even more powerful as an estate planning vehicle to minimize taxes, so it’s a convenient time to take advantage of Roth conversions. However, Roth conversions can come with some issues. Before you engage in one, be aware of these common problems as it can be hard to undo the transaction.Conversions After 72
IRAs and Roth IRAs are both retirement accounts. It’s easy to assume Roth Conversions are best suited for retirement, too. However, waiting too long to do conversions can actually make the entire process more challenging. If you own an IRA, it’s subject to required minimum distribution rules once you turn 72, as long as you had not already reached age 70.5 by the end of 2019. The government wants you to start withdrawing money from your IRA each year and pay taxes on the tax-deferred money. However, Roth IRAs aren’t subject to RMDs at age 72. If you don’t need the money from your RMD to support your retirement spending, you might think, “I should convert this to a Roth IRA so it can stay in a tax-deferred account longer.” Unfortunately, that won’t work. You can’t roll over or convert RMDs for a given year. So, if you owe a RMD in 2020, you need to take it and you cannot convert it to a Roth IRA. Despite the fact you can’t convert an RMD, it doesn’t mean you can’t do Roth conversions after age 72. However, you need to make sure you get your RMD out before you do a conversion. Your first distributions from an IRA after 72 will be treated as RMD money first. This means, if you want to convert $10,000 from your IRA, but you also owe an $8,000 RMD for the year, you need to take the full $8,000 out before you do a conversion. Full article on ForbesFor a comprehensive review of your personal situation, always consult with a tax or legal advisor. Neither Cetera Advisor Networks LLC nor any of its representatives may give legal or tax advice."
"Distributions from traditional IRAs and employer sponsored retirement plans are taxed as ordinary income and, if taken prior to reaching age 59½, may be subject to an additional 10% IRS tax penalty. Converting from a traditional IRA to a Roth IRA is a taxable event. A Roth IRA offers tax free withdrawals on taxable contributions. To qualify for the tax-free and penalty-free withdrawal of earnings, a Roth IRA must be in place for at least five tax years, and the distribution must take place after age 59½ or due to death, disability, or a first time home purchase (up to a $10,000 lifetime maximum). Depending on state law, Roth IRA distributions may be subject to state taxes.
[post_title] => 3 Roth Conversion Traps To Avoid After The SECURE Act [post_excerpt] => Roth conversions can be a powerful tax and retirement planning technique. The idea behind most Roth conversions is to take money from an IRA and convert it to a Roth IRA. Essentially, you’re paying taxes today instead of paying taxes in the future. [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => 3-roth-conversion-traps-to-avoid [to_ping] => [pinged] => [post_modified] => 2020-02-28 16:01:10 [post_modified_gmt] => 2020-02-28 22:01:10 [post_content_filtered] => [post_parent] => 0 [guid] => https://divi-partner-template.carsonwealth.com/?post_type=news&p=53316 [menu_order] => 0 [post_type] => news [post_mime_type] => [comment_count] => 0 [filter] => raw ) [2] => WP_Post Object ( [ID] => 62693 [post_author] => 6008 [post_date] => 2019-12-06 11:26:33 [post_date_gmt] => 2019-12-06 16:26:33 [post_content] => By Jamie Hopkins People plan on having a good day, a good year, a good retirement and a good life. But why stop there? Why not plan for a good end of life, too? End of life or estate planning is about getting plans in place to manage risks at the end of your life and beyond. And while it might be uncomfortable to discuss or plan for the end, everyone knows that no one will live forever. Estate planning and end of life planning are about taking control of your situation. Death and long-term care later in life might be hard to fathom right now, but we can’t put off planning out of fear of the unknown or because it’s unpleasant. Sometimes it takes a significant event like a health scare to shake us from our procrastination. Don’t wait for life to happen to you, though. Full article on Kiplinger [post_title] => 10 Common Estate Planning Mistakes (and How to Avoid Them) [post_excerpt] => Estate planning and end of life planning are about taking control of your situation. Death and long-term care later in life might be hard to fathom right now, but we can’t put off planning out of fear of the unknown or because it’s unpleasant. Don’t wait for life to happen to you, though. [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => 10-common-estate-planning-mistakes-and-how-to-avoid-them-2 [to_ping] => [pinged] => [post_modified] => 2020-02-28 17:02:24 [post_modified_gmt] => 2020-02-28 22:02:24 [post_content_filtered] => [post_parent] => 0 [guid] => https://carsondemo.com/insights/news/10-common-estate-planning-mistakes-and-how-to-avoid-them-2/ [menu_order] => 0 [post_type] => news [post_mime_type] => [comment_count] => 0 [filter] => raw ) [3] => WP_Post Object ( [ID] => 51325 [post_author] => 6008 [post_date] => 2019-12-06 10:26:33 [post_date_gmt] => 2019-12-06 16:26:33 [post_content] => By Jamie Hopkins People plan on having a good day, a good year, a good retirement and a good life. But why stop there? Why not plan for a good end of life, too? End of life or estate planning is about getting plans in place to manage risks at the end of your life and beyond. And while it might be uncomfortable to discuss or plan for the end, everyone knows that no one will live forever. Estate planning and end of life planning are about taking control of your situation. Death and long-term care later in life might be hard to fathom right now, but we can’t put off planning out of fear of the unknown or because it’s unpleasant. Sometimes it takes a significant event like a health scare to shake us from our procrastination. Don’t wait for life to happen to you, though. Full article on Kiplinger [post_title] => 10 Common Estate Planning Mistakes (and How to Avoid Them) [post_excerpt] => Estate planning and end of life planning are about taking control of your situation. Death and long-term care later in life might be hard to fathom right now, but we can’t put off planning out of fear of the unknown or because it’s unpleasant. Don’t wait for life to happen to you, though. [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => 10-common-estate-planning-mistakes-and-how-to-avoid-them [to_ping] => [pinged] => [post_modified] => 2020-02-28 16:02:24 [post_modified_gmt] => 2020-02-28 22:02:24 [post_content_filtered] => [post_parent] => 0 [guid] => https://divi-partner-template.carsonwealth.com/?post_type=news&p=51325 [menu_order] => 0 [post_type] => news [post_mime_type] => [comment_count] => 0 [filter] => raw ) [4] => WP_Post Object ( [ID] => 62692 [post_author] => 273 [post_date] => 2019-11-11 16:27:38 [post_date_gmt] => 2019-11-11 21:27:38 [post_content] => By Jamie HopkinsEveryone’s heard the stories of celebrities who died without a proper estate plan in place. It’s been a hot topic in the last few years with Prince and Aretha Franklin serving as unfortunate faces of the phenomenon. But it’s not just freewheeling entertainers. Abraham Lincoln – a lawyer by trade – didn’t have one either, which leads me to say something you’ve probably never heard anyone say: don’t be like Abraham Lincoln.
Most people want to plan for a good life and a good retirement, so why not plan for a good end of life, too? Let’s look at four ways you can refine your estate plan, protect your assets and create a level of control and certainty for your loved ones.1. Review Beneficiary Designations
Many accounts can pass to heirs and loved ones without having to go through the sometimes costly and time-consuming process of probate. For instance, life insurance contracts, 401(k)s and IRAs can be transferred through beneficiary designations – meaning you determine who you want to inherit your accounts after you die by filing out a beneficiary form. You can often name successors or backup beneficiaries, and even split up accounts by dollar amount or percentages between beneficiaries with these forms. Full article on Forbes [post_title] => 4 Ways To Improve Your Estate Plan [post_excerpt] => Most people want to plan for a good life and a good retirement, so why not plan for a good end of life, too? Let’s look at four ways you can refine your estate plan, protect your assets and create a level of control and certainty for your loved ones. [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => 4-ways-to-improve-your-estate-plan-2 [to_ping] => [pinged] => [post_modified] => 2020-02-28 17:02:59 [post_modified_gmt] => 2020-02-28 22:02:59 [post_content_filtered] => [post_parent] => 0 [guid] => https://carsondemo.com/insights/news/4-ways-to-improve-your-estate-plan-2/ [menu_order] => 0 [post_type] => news [post_mime_type] => [comment_count] => 0 [filter] => raw ) ) [post_count] => 5 [current_post] => -1 [before_loop] => 1 [in_the_loop] => [post] => WP_Post Object ( [ID] => 62697 [post_author] => 55227 [post_date] => 2020-01-28 11:38:21 [post_date_gmt] => 2020-01-28 16:38:21 [post_content] => By Jamie HopkinsRoth conversions can be a powerful tax and retirement planning technique. The idea behind most Roth conversions is to take money from an IRA and convert it to a Roth IRA. Essentially, you’re paying taxes today instead of paying taxes in the future.
The Tax Cut and Jobs Act lowered taxes for many Americans and with the SECURE Act Roth IRAs became even more powerful as an estate planning vehicle to minimize taxes, so it’s a convenient time to take advantage of Roth conversions. However, Roth conversions can come with some issues. Before you engage in one, be aware of these common problems as it can be hard to undo the transaction.Conversions After 72
IRAs and Roth IRAs are both retirement accounts. It’s easy to assume Roth Conversions are best suited for retirement, too. However, waiting too long to do conversions can actually make the entire process more challenging. If you own an IRA, it’s subject to required minimum distribution rules once you turn 72, as long as you had not already reached age 70.5 by the end of 2019. The government wants you to start withdrawing money from your IRA each year and pay taxes on the tax-deferred money. However, Roth IRAs aren’t subject to RMDs at age 72. If you don’t need the money from your RMD to support your retirement spending, you might think, “I should convert this to a Roth IRA so it can stay in a tax-deferred account longer.” Unfortunately, that won’t work. You can’t roll over or convert RMDs for a given year. So, if you owe a RMD in 2020, you need to take it and you cannot convert it to a Roth IRA. Despite the fact you can’t convert an RMD, it doesn’t mean you can’t do Roth conversions after age 72. However, you need to make sure you get your RMD out before you do a conversion. Your first distributions from an IRA after 72 will be treated as RMD money first. This means, if you want to convert $10,000 from your IRA, but you also owe an $8,000 RMD for the year, you need to take the full $8,000 out before you do a conversion. Full article on ForbesFor a comprehensive review of your personal situation, always consult with a tax or legal advisor. Neither Cetera Advisor Networks LLC nor any of its representatives may give legal or tax advice."
"Distributions from traditional IRAs and employer sponsored retirement plans are taxed as ordinary income and, if taken prior to reaching age 59½, may be subject to an additional 10% IRS tax penalty. Converting from a traditional IRA to a Roth IRA is a taxable event. A Roth IRA offers tax free withdrawals on taxable contributions. To qualify for the tax-free and penalty-free withdrawal of earnings, a Roth IRA must be in place for at least five tax years, and the distribution must take place after age 59½ or due to death, disability, or a first time home purchase (up to a $10,000 lifetime maximum). Depending on state law, Roth IRA distributions may be subject to state taxes.
[post_title] => 3 Roth Conversion Traps To Avoid After The SECURE Act [post_excerpt] => Roth conversions can be a powerful tax and retirement planning technique. The idea behind most Roth conversions is to take money from an IRA and convert it to a Roth IRA. Essentially, you’re paying taxes today instead of paying taxes in the future. [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => 3-roth-conversion-traps-to-avoid-2 [to_ping] => [pinged] => [post_modified] => 2020-02-28 17:01:10 [post_modified_gmt] => 2020-02-28 22:01:10 [post_content_filtered] => [post_parent] => 0 [guid] => https://carsondemo.com/insights/news/3-roth-conversion-traps-to-avoid-2/ [menu_order] => 0 [post_type] => news [post_mime_type] => [comment_count] => 0 [filter] => raw ) [comment_count] => 0 [current_comment] => -1 [found_posts] => 10 [max_num_pages] => 2 [max_num_comment_pages] => 0 [is_single] => [is_preview] => [is_page] => [is_archive] => [is_date] => [is_year] => [is_month] => [is_day] => [is_time] => [is_author] => [is_category] => [is_tag] => [is_tax] => [is_search] => [is_feed] => [is_comment_feed] => [is_trackback] => [is_home] => 1 [is_privacy_policy] => [is_404] => [is_embed] => [is_paged] => [is_admin] => [is_attachment] => [is_singular] => [is_robots] => [is_favicon] => [is_posts_page] => [is_post_type_archive] => [query_vars_hash:WP_Query:private] => 4abfa3ab13905499b393af01be581ea1 [query_vars_changed:WP_Query:private] => [thumbnails_cached] => [allow_query_attachment_by_filename:protected] => [stopwords:WP_Query:private] => [compat_fields:WP_Query:private] => Array ( [0] => query_vars_hash [1] => query_vars_changed ) [compat_methods:WP_Query:private] => Array ( [0] => init_query_flags [1] => parse_tax_query ) [tribe_is_event] => [tribe_is_multi_posttype] => [tribe_is_event_category] => [tribe_is_event_venue] => [tribe_is_event_organizer] => [tribe_is_event_query] => [tribe_is_past] => )
In the News
In the News
3 Roth Conversion Traps To Avoid After The SECURE Act
3 Roth Conversion Traps To Avoid After The SECURE Act
10 Common Estate Planning Mistakes (and How to Avoid Them)
10 Common Estate Planning Mistakes (and How to Avoid Them)
4 Ways To Improve Your Estate Plan
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- It’s been another volatile September. We’ve seen this before, and it may not be over yet.
- We expect there’s more room for interest rates to rise, especially if core inflation remains high.
- The Fed is likely to raise interest rates by 0.75% in September, but the key will be how far the Fed will go.
- Economic indicators, including retail sales, manufacturing, and unemployment claims, do not point toward a recession.
Interest Rates Could Keep Rising If Inflation Stays High
The August CPI report was not pretty. The headline number came in at 0.1%, pulled down by gas prices but higher than an expected -0.1% reading. The problem was core CPI, excluding food and energy, was 0.6%, twice what was expected. Tobacco, new vehicles, vehicle repairs, dental services, and hospital services all came in hotter than expected. Shelter costs continued to remain strong, while pandemic-impacted goods and services, including used/new cars, apparel, airfares, hotels, and furnishings, did not exert as much of a deflationary force as was expected by this time. There were still some positives. For starters, CPI likely peaked in June at more than 9% year-over-year and fell to 8.3% in August. It should continue to trend lower. We have seen huge drops in prices paid in various manufacturing surveys, improvements in time to delivery, and imploding used car prices. All these factors will feed into the official inflation numbers over the next few months. Nevertheless, markets were quick to react, as a hot inflation report led investors to expect the Fed to continue raising rates at a furious pace. Investors currently anticipate the federal funds rate to be raised as high as 4.2%. The white line in the chart below shows investor expectations for the fed funds rate, while the green line shows the median of the dots, which represent each Fed member’s estimate for where the policy rate will be in 2022 and beyond.Still No Sign of Recession
Data last week showed consumer spending remains solid, with retail sales rising 0.3% in August. This was mostly driven by auto sales, although spending was strong in various other sectors, including restaurants and building material and supply stores. The only drag was gasoline station purchases, where sales fell 4%, but that was because gas prices fell. If anything, we’re surprised at the strength of retail sales, which mostly comprise spending on goods, even as the country puts COVID in the rearview mirror. Real retail sales, which are adjusted for prices, rose 0.2% in August and are almost 10% above the pre-crisis trend, with no sign of slowdown yet.- The decline in global markets comes primarily from concerns about three key risks related to the invasion:
- What will be the adverse economic consequences of sanctions?
- What are the risks the conflict escalates into something larger?
- What are the long-term consequences of the attack?
- The S&P 500 returned 28.7% in 2021 as large U.S. companies continued to outperform many asset classes.
- Valuations on the S&P 500 remain above average even though strong earnings have helped reduce ever higher valuations from late last year.
- Industrial production data from Japan and South Korea show those two countries are helping to ease the shortage of semiconductors and automobiles.
- U.S. annualized GDP growth slowed to 2% from 6.7% last quarter as concerns over the Delta variant and ongoing supply issues limited economic growth.
- Businesses seeking to restructure supply chains and altered demand patterns have pushed business investment 13.2% higher during the last 12 months.
- Core PCE inflation increased 0.2% in September, the lowest level in seven months.
- Inflation data will likely heat up temporarily as the deflationary months during the most severe lockdowns in 2020 are replaced by above-average inflation. Producer prices rose 4.2% over the last year.
- The jobs market is showing mixed signs as initial unemployment claims increased 16,000 last week while job openings rose 268,000 in February as restaurants picked up hiring.
- S. service business are experiencing growth based on a non-manufacturing report of 63.7, which was the highest reading ever and well above expectations of 58.5.
Area | 1970s | 2020s |
Energy | Energy shortages and oil boycotts pressured prices | Abundant energy available domestically |
Energy Intensiveness | Energy intensive and no limited substitutes | Less energy intensive and energy substitutes gaining share |
Population | Baby boomers entering the workforce | Slower population growth |
Price Information | Pricing information harder to source | Internet makes finding cheap prices easier |
Top Industries | Autos and energy | Technology and communications |
Competition | Lower global competition | Higher global competition |
Mindset | High-inflation mindset | Low-inflation mindset |
- It’s been another volatile September. We’ve seen this before, and it may not be over yet.
- We expect there’s more room for interest rates to rise, especially if core inflation remains high.
- The Fed is likely to raise interest rates by 0.75% in September, but the key will be how far the Fed will go.
- Economic indicators, including retail sales, manufacturing, and unemployment claims, do not point toward a recession.
Interest Rates Could Keep Rising If Inflation Stays High
The August CPI report was not pretty. The headline number came in at 0.1%, pulled down by gas prices but higher than an expected -0.1% reading. The problem was core CPI, excluding food and energy, was 0.6%, twice what was expected. Tobacco, new vehicles, vehicle repairs, dental services, and hospital services all came in hotter than expected. Shelter costs continued to remain strong, while pandemic-impacted goods and services, including used/new cars, apparel, airfares, hotels, and furnishings, did not exert as much of a deflationary force as was expected by this time.Still No Sign of Recession
Data last week showed consumer spending remains solid, with retail sales rising 0.3% in August. This was mostly driven by auto sales, although spending was strong in various other sectors, including restaurants and building material and supply stores. The only drag was gasoline station purchases, where sales fell 4%, but that was because gas prices fell. If anything, we’re surprised at the strength of retail sales, which mostly comprise spending on goods, even as the country puts COVID in the rearview mirror. Real retail sales, which are adjusted for prices, rose 0.2% in August and are almost 10% above the pre-crisis trend, with no sign of slowdown yet.Array ( [showposts] => 5 [post_type] => monthly-newsletters [post_status] => publish )
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A 529 plan is a savings vehicle specifically for education expenses – this usually means college but can mean elementary or secondary school tuition in some states. You can start them at any point and contribute to them throughout the student’s life and even while they are pursuing that education. Growth on the account and qualified distributions are tax-free. Ideally, you would start a 529 college savings plan when your child is relatively young to maximize earning potential. You can make regular contributions, and relatives can also contribute easily through digital interfaces like Ugift or Gift of College. For some contributors, a tax deduction comes at the state level. There are currently 30 states that have carved out tax credits or deductions for these contributions. Some states do not have such programs and some states – Alaska and Florida, for example – don’t have personal income tax so the question is moot. There is no federal tax deduction, so contributions are considered after-tax on that level. Using a 529 plan comparison tool can help you find the right plan for you with the deductions that apply in your area.Qualifications
Like many financial instruments, qualifications are immensely important when withdrawing from or otherwise moving money in a 529. Qualified expenses for a 529 Plan include:
- Tuition
- Room and Board
- College Fees
- Textbooks and technology
- Student loan payments up to a certain amount
- Some professional apprenticeship programs
Your 529 Plan in the Financial Aid Process
Many of us may remember the FAFSA (Free Application for Federal Student Aid), a pile of pink and white paper we filled out sometime during our senior year and sealed with hope as we sent it off in the mail. Now the process is digital, of course, but one of the things they still ask about is the student’s financial context. The Expected Family Contribution is an index number established by law that involves your family’s taxed and untaxed income, assets and benefits (i.e., unemployment and Social Security). The number of kids in the family, and how many of them are also attending college, is another contributing factor. Your 529 plan will be considered during the process. What’s important to realize here is that your aid package is based on your family’s assets, but not those of grandparents or other loved ones. Grandma could have $100,000 socked away in a 529 plan, and it won’t affect your student’s financial aid offering. So if that’s the case, keep grandma as the owner of the plan and the student as the beneficiary – because the financial aid review is looking at only the parents and student. Distributions for the student from grandma’s 529 plan will be considered on the next FAFSA and treated as untaxed income for the student. Remember that the FAFSA looks at the income from two years before, so payments from grandma should wait until later in college.Transferring a 529 Plan
Another important out-of-the-box aspect of 529 planning concerns beneficiary transfer. In some scenarios, a student might not use all of their 529 money, thanks to scholarships and the like. The beneficiary of the plan can change without tax consequence if that new beneficiary is within the family – think of older brother finishing school and the plan transferring to younger sister. This beneficiary change is fairly simple and can be done on the plan’s website. Complexity might arise when the account crosses generations. Let’s say grandma has a 529 plan with her granddaughter as the beneficiary. Granddaughter doesn’t use up all the money in the account, and grandma designates her as the successor owner and then passes away, leaving her granddaughter as owner of the plan. If the granddaughter then names her son as the new beneficiary, it becomes a taxable transfer. Because the plan beneficiary changed to a family member of a younger generation than the current beneficiary, the beneficiary change is treated as a taxable transfer for gift tax purposes. It’s important to look forward to these changes strategically as much as possible, and discuss with your advisor and college planner how to minimize loss.529 Plan Rollovers
A 529 college savings plan rollover is one maneuver that can help when plans might have to change hands or generations. The IRS allows one tax-free rollover from a plan per beneficiary per year. If you found a 529 plan you like better, for example, you can rollover your previous plan into that one. This can be helpful in preparing an estate. If grandparents are getting on in years and have a 529 plan in place for a grandchild, they could transfer the money to a parent’s account in this rollover without losing on taxes or penalties. Keep in mind that it’s per beneficiary, so grandparents could rollover but great aunt and uncle couldn’t do the same thing for the same person the same year.Investing in the Future
Of course, the motivation behind a 529 plan goes far beyond tax breaks. You want to support a student’s dreams and a hopeful future. Planning intentionally with a 529 can help you optimize that support and make sure the most money goes where it should – to change a young person’s life. Get in touch today to see how education planning and other details fit into your financial picture! Make an appointment! This is not intended to provide specific legal, tax, or other professional advice. For a comprehensive review of your personal situation, always consult with a tax or legal advisor. Before investing, the investor should consider whether the investor’s or beneficiary’s home state offers any state tax or other benefits available only from that state’s 529 Plan. [post_title] => How a 529 Plan Can Help You Save for College and Invest in the Future [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => how-a-529-plan-can-help-you-save-for-college-and-invest-in-the-future [to_ping] => [pinged] => [post_modified] => 2021-04-01 12:51:55 [post_modified_gmt] => 2021-04-01 17:51:55 [post_content_filtered] => [post_parent] => 0 [guid] => https://carsondemo.com/insights/monthly-newsletters/how-a-529-plan-can-help-you-save-for-college-and-invest-in-the-future/ [menu_order] => 0 [post_type] => monthly-newsletters [post_mime_type] => [comment_count] => 0 [filter] => raw ) [1] => WP_Post Object ( [ID] => 62380 [post_author] => 6008 [post_date] => 2020-10-01 09:22:52 [post_date_gmt] => 2020-10-01 14:22:52 [post_content] => In the late 1920s, an enterprising Bostonian started selling subdivisions in the sunny ‘burbs of Florida. Promising orange trees in the backyard and rolling waves out the front door, he sold plots – sometimes 23 an acre! – near bustling towns like Nettie. Unfortunately, the entrepreneur’s name was Charles Ponzi, and Nettie, like his other locales, was a work of lucrative fiction. Scams have been around since money has been around. People find ways to circumvent laws, regulations and virus-protection software to leave town before anyone knows they – and the money – are gone. Let’s look at some of the scams out there right now, and how you can guard yourself and your family from buying some of Ponzi’s beachfront property.An Unlikely Statistic
First, let’s look at an unlikely statistic. As far as fraud goes, it’s well known that the elderly are targeted. One recent study found that suspicious activity reports made by elderly clients had quadrupled from 2013 to 2017. Taking advantage of perceived frailty or technology confusion is the oldest trick in a very old book. But the curveball here is that more millennials report being scammed than any other age group. But they lose less per capita than elderly victims. Those in their 20s reported a median loss of $400, compared to $1,092 for those 80 and older. Practically living online, especially in the COVID era, simply extends the surface area that scammers can come across. For example, the highest fraud rates for millennials are in online shopping, and they are slightly less likely to be targeted by phone scams like their parents and grandparents. Answers to passwords and security questions can also be easier to find on social media accounts. Your birthday, your pet’s names, your favorite sports teams – all kinds of collateral information is available that savvy fraudsters can use to their advantage.Fraud 2020
This year has left a lot of ducks sitting for financial scams. Disorienting news reports, the boredom of quarantine and generalized stress and paranoia have brought out the scammers with specific cons tailored just for this year.- Coronafinder Trojan Virus – This is a malware program that claims to show you who in your neighborhood tested positive. For a small fee, of course. They then take off with your credit card information and nothing happens.
- Refinancing Scams – Fraudsters are capitalizing on the impulse a lot of us have to lower our monthly payments when we see the lower interest rates available.
- COVID-19 Grants or Aid – You might get a Facebook message from someone claiming to be a government official asking you to pay an upfront fee and then they’ll send you a magical grant for COVID relief.
Information is Power
“All I need is your Social Security number…” A telltale sign of the modern scheme is a ploy for information. A Nigerian prince who wants to share his windfall with you, a friend who was robbed on a vacation and needs you to wire them money, or maybe that tech support person who calls and just needs you to log in one more time – these are the modern digital cliches in fraud. One of the classics in this sector is the phishing scheme. A fraudster will use a generic email sent to thousands of people to try to get just a few to respond with their critical information. The information can then be used to log into bank accounts or other forms of identity theft. The evolved version of this, especially of concern for business owners and executives, is spear-phishing. This is a specifically-aimed campaign that uses personal/proprietary information to pull off the scheme. One of the cautionary tales in spear-phishing is Ubiquiti, which was a victim in 2015 of a spear-phishing technique dubbed “whaling.” While their executive traveled globally and had limited communication with the home office, a fraudster jumped in and posed as the company leader, asking money to be wired to several locations. The total bill was $46.7 million, siphoned off over a matter of weeks.Some Basic Coordinates on Preventing Fraud
There are commonsense reminders here like anywhere else: Don’t take candy (or offers for free stuff) from strangers, especially internet strangers. But chances are your assets are more complex, and the “strangers” who might pose a danger to you are more sophisticated. Let’s look at a few basics.Keep it Clear
Make sure your financial manager uses a clearing firm. A custodian as your go-between helps you to make sure your investments are getting where they need to go and staying safe. Our firm uses TD Ameritrade and Fidelity, and you can get on their website as well as ours to make sure your finances are in order. Bernie Madoff, the modern-day Ponzi, was able to run his long con in part because he didn’t use a clearing firm. The buck stopped with him, allowing him to fabricate statements and performance reports. An impartial third party is a vital check and balance, especially when large amounts of money are involved. Private equity investments, for all their freedom and potential profit, are especially vulnerable to a Madoff-type scheme. Without the clearing firm to keep a watchful eye on all involved, there can be potentially fewer safeguards against fraud. As nice as it is to own equity in a business, it’s nicer to have watchdogs in place to make sure you actually do!The Tough Go Tech
Unfortunately, many con artists are near tech geniuses, haunting the internet to find the serious cash in digital transactions. High net worth clients are investing in customized cybersecurity involving a team of experts and coverage. One program, Starling, offers specific coverage for cybercrimes and fraud. They partner with a cybersecurity program that monitors internet activity through a VPN to watch for anomalous behavior and transactions. With only the nascent legal culture to find and prosecute cybercrimes and fraud, today’s investors can’t be too careful. Some high net worth clients, dissatisfied with enforcement online, have gone as far as hiring private investigators to navigate this uncharted territory.Privacy is Still Cool
“Social media has made privacy uncool,” observed comedian Pete Holmes, and scammers know this better than anyone. Showing a little more caution with what you put online, and also making sure your password life is separate from your personal life, can help your security immensely. Educating kids and grandkids on this is also an important step. Using a password manager or vault is another helpful measure that really should be standard operating practice in today’s world.Scam Protection To-Do List
There are many fairly simple, practical measures you can take to guard against scams or if you feel you have been scammed. Here are a few:- Freeze your credit report – It’s fairly simple to freeze your credit report if you suspect fraud activity. The big three, Experian, Equifax and TransUnion, offer this complimentary service.
- Report it – If you believe you are a victim of internet crime, you can report it to the Internet Crime Complaint Center (IC3) division of the FBI.
- Two-step verification on accounts are a great idea whenever the option is offered.
- VPN – Use a Virtual Private Network (VPN), especially when you send investment information or work on a public computer.
- Something Phishy – Watch for emails out of nowhere asking for sensitive information, and which usually have misspellings or come from unfamiliar addresses.
Not on Your Own
If there’s anything 2020 has shown us, it’s that we’re not alone. We all worry about market dips, working remotely and itching under our masks together. People are looking out for each other and expressing solidarity in surprising ways. Preventing fraud and recovering from its damage is a matter of finding professionals you can depend on. Your financial advisor can help you put together a plan to keep you safe and help you avoid risks that are unnecessary and expose you. Set up an Appointment! [post_title] => How Financial Scams Work, and How to Keep Yourself Safe No Matter Your Level of Wealth [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => how-financial-scams-work-and-how-to-keep-yourself-safe-no-matter-your-level-of-wealth [to_ping] => [pinged] => [post_modified] => 2020-10-01 09:22:52 [post_modified_gmt] => 2020-10-01 14:22:52 [post_content_filtered] => [post_parent] => 0 [guid] => https://carsondemo.carsonwealth.com/insights/monthly-newsletters/how-financial-scams-work-and-how-to-keep-yourself-safe-no-matter-your-level-of-wealth/ [menu_order] => 0 [post_type] => monthly-newsletters [post_mime_type] => [comment_count] => 0 [filter] => raw ) [2] => WP_Post Object ( [ID] => 62064 [post_author] => 6008 [post_date] => 2020-09-03 11:13:00 [post_date_gmt] => 2020-09-03 16:13:00 [post_content] => Sneaking away during the lull between peak times – “the shoulder season” – is popular with savvy travelers for reduced crowds, milder weather and usually great deals on travel packages. Tired of the brutally hot summer in the south? Walk the vineyards at harvest in Tuscany. Not looking forward to the long cold months upcoming in New England? Chase the summer down to Cancun. All for considerably less than you’d pay in summer, while the under-21 crowd is back in school. But this year, travel – like everything else – looks quite a bit different. The headlines change about every time you refresh your browser as restrictions, qualifications and confusion plague the shoulder season. What used to be a relatively simple and inexpensive time to get away has become much more complicated. Let’s look at the complexities associated with autumn travel plans in 2020.The Travel Supply Chain
What luck! You’ve found an all-inclusive, week-long cruise to Honolulu in October for your whole family! It costs less than it did for you and your spouse to go last fall, and now you can bring the kids! But when you get there, you better hope you enjoy the boat, because that’s where you’ll be staying! A mandatory 14-day quarantine is still in effect there right now and doesn’t show signs of letting up. Most of us can’t afford the time (or money!) to pop off to Maui for more than two weeks, especially at this time of year, so now the deep discount on the prices makes sense – and not in a good way. Other travel issues affect what might be called the “supply chain” of travel, even during the shoulder season. Social distancing measures and quarantine restrictions aren’t the same all over the world. You might be in a safe environment at home in Chicago and then land in a virus hotspot where the restrictions are more relaxed. Carrying the virus back with you, even if you never show symptoms, is a real possibility as we all know. If you can come back at all. Airlines have closed and reopened a few different times in different parts of the world. While you’re gone, could the border close before you get back home? What about your layover? Will the planes be grounded? Besides quarantine, these are the kinds of variables that keep people at home and on the ground.Problems for the Tourism Business
From the business side of the question, the losses hurt and will probably hurt for a long time. A UN report estimated $3.3 trillion in losses for tourism in 2020, an astronomical number that will take years to recover. Think about it in practical terms. A cruise ship might have around 1,000 staff members. No cruises means no revenue, so these crew members are sent home because of lack of work, many of them to other countries. If the virus suddenly disappears, this isn’t a turnkey operation. Cruise lines can’t simply open up without trained crew members, who might be all around the world at this point. They also can’t run for a month until the restrictions change again. So recouping money lost during the pandemic is a matter of years, not months. On top of this, collateral business will be affected, probably long after quarantine is over. For cruise ships, the many ports that run everything from posh clinics to tchotchke souvenir shops are ghost towns. For college football cities like Auburn, Alabama, and Lincoln, Nebraska, the bars and restaurants are notably empty. Add to this the crime that can be part of life in some vacation destinations. Scarcity and desperation can make this worse and will keep on-the-fence travelers away. The overall markets showed record volatility this year, but for the most part have plateaued. S&P growth has slowed but continues to increase. But there are major parts of the economy, such as tourism, that have been devastated. The International Air Transport Association estimates that it will take until 2024 for air travel to return to pre-pandemic levels. It’s too early to tell what kind of long-term effect these issues will have, but we could be looking at discounted and otherwise complicated travel for a long time.Keeping it Close to Home
Necessity, or at least inconvenience, births another one of the great American virtues: innovation. Take for instance the industry that is booming: outdoor retailers. Kayaks, fishing rods and bikes are disappearing off the shelves like toilet paper in April, and campsites are packed in. Tourism to favorite in-house destinations, which we may remember from decades past, is becoming popular again. Mt. Rushmore, Yellowstone, even old Route 66 will probably sell more t-shirts and oversized novelty pencils than they have in years. Costco has long been a provider of affordable vacation packages. Now they feature the national parks to their list of possibilities alongside tropical and European locations.Shrugging in the Shoulder Season
So where does that leave us in the “shoulder season” of 2020? On the one hand, we may be looking at fantastic discounts and affordable vacations we’ve always dreamed of. On the other hand, the safety of our families and communities could be endangered if we travel carelessly. And while we might take the easier solution – just don’t go – we still need to practice self-care. Our physical and emotional health will decidedly affect our financial health. Innovation will be the name of the game. We have to think more comprehensively and creatively about what “vacation” means. That could mean considerably more planning ahead, such as using COVID Controls, an interactive website that shows updated travel restrictions around the world. Innovation also means rethinking “staycation” in the pandemic world. National parks, museums, local monuments can offer us a chance to relax and get our mind off work or other stresses. If you have kids in the mix, a hotel pool can be (just about) an exotic vacation. Catch a musical, eat steak every night and make the most of staying in place. More than likely, you’ll be spending less money on your autumn travel plans in 2020. That means more to invest, or it could mean putting something toward a make-up trip in the spring. Seeing Madrid or London in the warmer months is amazing, but it feels even better when it’s fully paid off with pocket money left over. How can we help you plan for this unprecedented year? Get in touch today to talk through your portfolio with your financial advisor. Make an appointment! [post_title] => How to Invest Creatively in Your Fall Vacation this Year [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => how-to-invest-creatively-in-your-fall-vacation-this-year [to_ping] => [pinged] => [post_modified] => 2020-09-03 11:13:00 [post_modified_gmt] => 2020-09-03 16:13:00 [post_content_filtered] => [post_parent] => 0 [guid] => https://carsondemo.carsonwealth.com/insights/monthly-newsletters/how-to-invest-creatively-in-your-fall-vacation-this-year/ [menu_order] => 0 [post_type] => monthly-newsletters [post_mime_type] => [comment_count] => 0 [filter] => raw ) [3] => WP_Post Object ( [ID] => 61984 [post_author] => 6008 [post_date] => 2020-08-06 12:02:09 [post_date_gmt] => 2020-08-06 17:02:09 [post_content] => Do you know what it was like to buy a house in 1982? You pulled up your Trans Am to the bank where the picture of President Regan hung on the lobby wall and got your checkbook out of your jean jacket. Then you signed up for a 30-year mortgage with a 17% interest rate! The housing market, along with the rest of the world, has changed quite a bit since then. Now, you sit at home in your pajamas and compare interest rates across several lenders on high-speed internet – rates that are usually less than half of what you paid a generation ago. COVID-19 tipped the gravity once again with this discussion and left us with historically low mortgage rates. The virus, quarantine and consequent economic depression caused the Federal Reserve to tank interest rates, leaving mortgage rates around or below 3.5% for most of the year. Compare this to a consistent rate of over 4% for several years running. We’ve come a long way since mom and dad’s Trans Am scenario, which means a culture shift for housing finance and the need for new strategies, especially in an off-kilter year like 2020. Let’s look at some new cautions and opportunities in the housing markets.Variable-Rate Mortgage versus 30-year Fixed Mortgage
Introduced in the 1980s, variable-rate mortgages – also called adjustable-rate mortgages – were a step toward helping the average American own a home. The variable rate could come in much lower than the going interest rate, which might make it more appealing to Joe and Jane Public as they scraped their pennies together. Unlike generations before, who had to procure tens of thousands in cash and look down the barrel of a very high monthly payment for decades, the variable-rate put homeownership in reach. Joe and Jane could start homeownership with an interest rate at sometimes half of the 30-year fixed rates, which were nearly out of reach for most people in the middle of the bell curve in those days. Today, the variable rate can be especially helpful if your life is set to change regularly. If you plan to move in five years, it can be advantageous to lock in that low interest rate for that limited initial period. You’ll also have a lower initial payment. The risk with variable rates is that they – guess what? – vary. Twenty years ago you may have been able to get a variable-rate mortgage at 3%, beating the market standard of 8%. This adjustable-rate was good for five years, and then you hit the going rate of 6.5%. It might stay there for a year before changing again – and change could mean going up! On the other hand, your rates could go down for certain periods over the life of your loan, depending on the markets. If you were able to get a 30-year fixed-rate mortgage at 4%, then it would still be the same rate, no matter if the markets went up or down. Initially, you would have paid a bit more, but you don’t have to worry when the markets go up a few years later. Conversely, you don’t get to party when they go down, because your rate is locked in.Current Rates
The debate between variable versus fixed-rate mortgages is a standard in financial circles, and both have pros and cons depending on your financial journey and goals. However, the current markets brought in a wild card because of the Fed’s efforts to shore up the economy. With the lower federal rate, mortgages in early August are coming in at 3%. A popular variable-rate mortgage, the 5/1, is coming in at 2.5%.Do the Math
Let’s look at the math. Yes, 3% is higher than 2.5% by half a percent. At the 2.5% rate, you would save $5,000 over five years on a $200,000 home loan. But after that, you’re subject to whatever interest rate benchmark your variable-rate loan is tied to. Five years from now, interest rates could spike. If the interest rate on your loan suddenly jumps to 6% for a year, that $5,000 you saved is going to disappear quickly. Sticking with a 30-year fixed-rate, especially one you obtained in a low-interest market, will save you a lot in the long-run. Expand your vision from a few extra digits on the monthly bill to those few extra digits added up over the years. The variable-rate deal, which a bank or realtor might put in front of you, is similar to the maneuver often made by cell phone services. You sign on for a deal that shouts in loud, large-font letters: “PHONE FOR $29!!!” You don’t look closely enough to see that next to all those flashy words it says “per month.” Well, you can cover 30 bucks a month, no problem. But after two years, you find you’ve paid $720 – plus a small horde of hidden fees – for the phone. That’s not unreasonable, but it’s not peanuts either, and it certainly feels different than the easy $29 you were promised on that first day. This is a small scale example of what could happen with a variable-rate mortgage, it looks smaller now, but you have to consider the life of the payment plan, not one installment.Play 4D Chess
The slang term “4D chess” comes to mind when we think of variable versus fixed mortgage rates – which means you think and move in four dimensions, seeing beyond what’s right in front of you. We have to play 4D chess in an economic environment like 2020. We’re seeing counter-intuitive circumstances, like traditional and variable-rate mortgages at nearly the same rates, and it isn’t over yet. In complex times like this, a meeting with your advisor can help you simplify and clarify. How can we help you? Get in touch today and we’ll help you plan out your next move. Make an appointment! [post_title] => Comparing Traditional Mortgages and Variable-Rate Mortgages in the COVID-19 Economy [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => comparing-traditional-mortgages-and-variable-rate-mortgages-in-the-covid-19-economy [to_ping] => [pinged] => [post_modified] => 2020-08-06 12:02:09 [post_modified_gmt] => 2020-08-06 17:02:09 [post_content_filtered] => [post_parent] => 0 [guid] => https://carsondemo.carsonwealth.com/insights/monthly-newsletters/comparing-traditional-mortgages-and-variable-rate-mortgages-in-the-covid-19-economy/ [menu_order] => 0 [post_type] => monthly-newsletters [post_mime_type] => [comment_count] => 0 [filter] => raw ) [4] => WP_Post Object ( [ID] => 62719 [post_author] => 6008 [post_date] => 2020-07-02 10:19:52 [post_date_gmt] => 2020-07-02 15:19:52 [post_content] => Debt consolidation and repayment takes up a lot of America’s bandwidth. You can’t watch TV, especially daytime TV, without seeing at least one advertisement promising you freedom from debt – call now! These gimmicks are hit-and-usually-miss, but the sheer ubiquity of this conversation tells us it’s on everyone’s mind. Debt, like every other financial issue, is emotional at its root. Salary, bank account size, credit score – these are all emotional issues, sensitive and sometimes painful. But debt is a nerve center. It connects to our family baggage, our psychological frailty and is a constant reminder of our financial limits. This relegates debt repayment to the not-fun-to-talk-about category – but it can become much more expensive as an afterthought. With that in mind, let’s look at two important debt reduction plans, realizing it has as much to do with our emotional makeup as it does with figures on a spreadsheet. Let’s look at two popular approaches: snowball and avalanche.Debt Repayment Method No. 1: The Snowball Approach
This debt reduction plan has been most popularized by the one and only Dave Ramsey, whose faith-based approach to personal finance is incredibly popular. As confidently as they are presented, his methods are not without flaws, and the snowball debt repayment approach is something we should think through before implementing. The basics are simple: The person pays the minimum balance on each debt they have, and then adds any leftover money to the smallest debt in the row. After you pay off your smallest debt first, you then move on to the next and the next – a snowball effect. This approach is taken without regard to the interest rates or timelines on each debt. Let’s break this down. Dennis Debt-Payer has the following debts outstanding:- Car: $8,000
- Credit Card: $10,000
- Student Loan: $30,000
- Harley: $4,500
- Car: $150
- Student Loan: $200
- Harley: $100
- Credit Card: $250
Debt Repayment Method No. 2: The Avalanche
Let’s rewind Dennis Debt-Payer and have him start with an entirely different debt repayment plan. This approach, called the avalanche method, starts with the highest interest rate loan, which for Dennis looks like this:- Credit Card: 19%
- Car: 5%
- Harley: 4%
- Student Loan: 3.5%
So Which Debt Repayment Method is Better: Snowball or Avalanche?
On paper, with simple math in front of you, the avalanche method seems like the obvious choice. If Dennis went with the snowball method, in 18 months or so he will pay roughly $4,000 interest on $10,000 credit card debt – a lot of money but not as much money if he delayed repayment. But the psychology behind the approach is where the debate lies. The snowball method may be preferable because it provides the emotionally powerful “quick win.” Driving around on a paid-for motorcycle might give you just the inspiration you need to tackle the next debt. If that debt is gone in six months or a year, your motivation “snowballs” until you are debt-free. The avalanche method has math in its favor but is taxing mentally. Sure, you may chip away at that high-interest debt, but if it takes years to get rid of, that might not inspire you. You might be tempted to start taking financial “cheat days,” spending money unwisely because your debt repayment plan seems to have little effect and your goal still seems so far away.Know Thyself
It’s a matter of knowing yourself: What motivates you? If you “avalanche” your debt, will you rack up more of it during the time it takes to pay off or will you stay motivated when the finish line seems so far away? If you “snowball” your debt, will a high-interest loan end up costing you more over time or will you ultimately be better off because you stay motivated to continue paying down what you owe? Your goal is to be debt-free, and you need to choose the method that will work for you – right now, and especially a year from now. Your advisor knows not only the models for debt-repayment, they know you, which is crucial in the journey toward debt freedom. Get in touch today, and let’s take the first step. Set up an appointment! [post_title] => Paying Off Debt: As You Work Toward Debt Freedom, is the Snowball or Avalanche Method Right for You? [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => paying-off-debt-as-you-work-toward-debt-freedom-is-the-snowball-or-avalanche-method-right-for-you-2 [to_ping] => [pinged] => [post_modified] => 2020-07-02 10:19:52 [post_modified_gmt] => 2020-07-02 15:19:52 [post_content_filtered] => [post_parent] => 0 [guid] => https://carsondemo.com/insights/monthly-newsletters/paying-off-debt-as-you-work-toward-debt-freedom-is-the-snowball-or-avalanche-method-right-for-you-2/ [menu_order] => 0 [post_type] => monthly-newsletters [post_mime_type] => [comment_count] => 0 [filter] => raw ) ) [post_count] => 5 [current_post] => -1 [before_loop] => 1 [in_the_loop] => [post] => WP_Post Object ( [ID] => 64125 [post_author] => 6008 [post_date] => 2021-04-01 12:51:55 [post_date_gmt] => 2021-04-01 17:51:55 [post_content] => Despite an evolving society, college is still a right of passage for many. We pack the family SUV with suitcases and dreams and take the young hopeful on to their next adventure. One of the most important investments you can make is helping your kids, and even grandkids, fund their education with a 529 college savings plan. With college costs running double or more than they did 30 years ago and the student loan crisis reaching about $1.6 trillion in debt, every little bit helps. Let’s look not just at the basics of a 529 plan, but at 529 planning – how this powerful savings tool fits into your overall financial plan and helps you optimize the support you give young people in your life.529 Basics and Qualifications
A 529 plan is a savings vehicle specifically for education expenses – this usually means college but can mean elementary or secondary school tuition in some states. You can start them at any point and contribute to them throughout the student’s life and even while they are pursuing that education. Growth on the account and qualified distributions are tax-free. Ideally, you would start a 529 college savings plan when your child is relatively young to maximize earning potential. You can make regular contributions, and relatives can also contribute easily through digital interfaces like Ugift or Gift of College. For some contributors, a tax deduction comes at the state level. There are currently 30 states that have carved out tax credits or deductions for these contributions. Some states do not have such programs and some states – Alaska and Florida, for example – don’t have personal income tax so the question is moot. There is no federal tax deduction, so contributions are considered after-tax on that level. Using a 529 plan comparison tool can help you find the right plan for you with the deductions that apply in your area.Qualifications
Like many financial instruments, qualifications are immensely important when withdrawing from or otherwise moving money in a 529. Qualified expenses for a 529 Plan include:- Tuition
- Room and Board
- College Fees
- Textbooks and technology
- Student loan payments up to a certain amount
- Some professional apprenticeship programs
Market Commentary
Market Commentary
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