Thoughts about Tax Day

April 15 (this year the 18th) is a day most of us look forward to being behind us as we have either filed our annual income tax return or have extended it and have six more months to face the reality of taxes! However, it should really be a time to consider what could have been done differently to reduce taxes or more importantly what can be done for the current year and in the future. The key is treating taxes strategically and to have a plan to control or reduce one’s taxes in the future.

Example 1: For those who are currently over the age of 70, there is the potential of making charitable contributions directly from one’s IRA instead of taking the annual required minimum distribution (RMD) as opposed to including the RMD in one’s adjusted gross income and then taking a charitable deduction. Because of the complexity of the tax laws, this is a more tax efficient way to report income. It can reduce the impact of limitations based on one’s Annual Gross Income and it has the benefit of reducing state taxes as well.

Example 2: Everyone (including those not over age 70), should consider making charitable contributions using appreciated long term capital gain property because in most cases one gets a full fair market value charitable deduction without having to pay taxes on the built-in gain.

These are just two examples of strategic tax planning which should be a part of everyone’s wealth plan. Reach out to one of our Financial Life Advisors for more information and excellent advice.

 

Intergeneration Wealth Transfer: Part 1

Coming Soon: The Largest Wealth Transfer in History

Financial planning has never been as critical a discipline as it is today

Analysts expect $16 trillion of ultra high net worth (UHNW) money to be transferred to the next generation, with $6 trillion of that occurring in the next 30 years. Without adequate planning, the ultra wealthy could lose up to half of their fortunes through inheritance taxes. This is why we believe that planning ahead is crucial to ensuring that your wealth is able to be passed on to your loved ones. Identifying goals with your advisor early on regarding wealth transfer and communicating those goals to the next generation can only help put your family in a better position moving forward.  Call your Telemus Financial Life Advisor to take the next step.

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Social Security File and Suspend Deadline April 29th

Immediate action required; you may be losing more than $50,000! April 29 is the last day anyone age 66 or older can file with Social Security to take advantage of the “file and suspend” strategy!  File and suspend allows anyone who is over their full retirement age to allow their benefits to grow to age 70 while allowing a spouse to claim spousal benefits now or in the future on your work record. After this date you must actually start receiving benefits and therefore no longer compound the growth of your benefit to allow a qualifying spouse to collect spousal benefits. Review your situation with one of our Financial Life Advisors as soon as possible.

Be aware of IRS Tax Scams

This is the time of the year when people are confronted with all kinds of Tax scams all with the goal of obtaining personal information about you. Be aware that the IRS never initiates a contact with a taxpayer by phone; the first contact is always in writing. A newer scam involves a call from a purported IRS agent calling to verify information in your tax return with the pretense of expediting your tax refund. The IRS does not contact taxpayers in this way. IRS commissioner John Koskinen has stated “These schemes continue to adapt and evolve in an attempt to catch people off guard just as they are preparing their tax returns; Don’t be fooled. The IRS won’t be calling you out of the blue, asking you to verify your personal tax information.” Be very wary as we have seen instances where people are caught off guard when receiving very official sounding calls.

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March 16, 2016

 

Fewer Funds Can Mean Better Focus

While conventional wisdom may say that the more investment options one has, the better he can construct a portfolio, new studies say that may not be the case when it comes to employee retirement plans. Researchers found that a reduction in fund options actually led investors to choose lower cost funds better suited to their risk tolerance. Plan administrators have always been faced with a tough decision, whether to let investors have access to the widest range of investments possible, or to simplify the decision making process by offering a smaller menu of solid, low-cost options representing various asset classes. We have always leaned toward the latter, believing what the research is proving out: too many options creates confusion and a feeling of being overwhelmed. By sticking with one or two options in the major asset classes, as well as offering risk-based funds, participants are better able to research what is available and make the best choice for them, while still constructing a diverse portfolio.

 

Source: Wall Street Journal

Annuities make sense until they don’t

To begin the year, the Dow Jones Industrial Average experienced a triple digit change in price, either positively or negatively, every single trading day during the month of January*. Volatility such as we experienced during the first month of the year may invite many investors to opt out of this roller coaster ride for one that appears to be much smoother – lifetime income annuities. These annuities, upon purchase, guarantee a steady stream of income for the rest of one’s life. On the surface, this option appears relatively attractive for those nearing retirement; however, there are many unforeseen risks that one must watch out for. First off, the annuity is guaranteed by a company, which introduces counter-party risk. Therefore, if the company goes bankrupt, the annuity and savings are more than likely going with it. Additionally, when one passes away, the remaining value of the annuity does not get passed on to one’s heirs but instead goes to the insurer. Finally, once purchased, one is unable to tap into the annuity should sudden health care or financial emergencies arise. Therefore, while the roller coaster ride we experienced in January may entice you to opt for one of these lifetime income annuities, keep these risks in mind before going off the tracks.

Source: Bloomberg

 

Where Would The Financial News Media Be Without Panic and Euphoria?

Global equity markets were off to a rough start in 2016 with U.S., Chinese and European markets all suffering significant losses. As usual, the financial media exacerbated the downturn by using words like “panic” which may have resulted in some ordinary investors heading for the exits rather than staying the course. Similarly, ordinary investors shouldn’t react with complete euphoria if record gains were posted rather than a selloff. Either way, it’s important to avoid myopia, stay level headed and think long term. The problem is that this kind of sensible investment advice is too boring for the financial media. It’s far more exciting interviewing two market pundits with polar opposite viewpoints who love to prognosticate about market direction. Much of this advice is a waste of time, but, if followed, could be extremely detrimental to ordinary investors. Ordinary investors should spend more time getting advice on tackling real financial challenges and less time fixated on the day to day gyrations of their investment portfolios.1

Source: The Atlantic

401(k) Safety in Volatile Markets

2016 has arrived and with the calendar changing, it brought an unfortunate bang. Markets have seen increased volatility since the calendar year ended, with the S&P 500 Index dropping more than 7.5% in the first 10 trading days. This volatility can leave many investors worried about losing money in their 401(k)’s, especially those close to retirement, and lead others to dramatically alter their asset allocations. However, many financial advisors, us included, would argue for a different course of action. Instead of focusing on the markets and the daily gyrations, retirees need to focus on two key areas: risk tolerance and time horizon. As long as your portfolio accounts for the risk you are willing and able to tolerate and is focused on the proper investment horizon given when and how long you plan on being in retirement, weekly fluctuations in the market should no longer worry you quite as much as they once had.

 

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