Millennials Matter: To Rent or to Buy?

Contributed by: Melissa Parkins, CFP®

The infamous question – should I continue to rent or should I buy a house? The answer – it completely depends! The right answer for you will depend on a number of factors:

• How long you plan on living in the same location

• The prices of rent compared to buying in your location

• Costs such as maintenance and repairs, insurance, property taxes

• The inflation rate that rent will rise

See Matt’s blog for more considerations and details when contemplating buying a home. It is one of the largest financial decisions you will make in your life, and there are a lot of common misconceptions to also consider before pulling the trigger:

• Paying rent is the equivalent of throwing away money.

  • Either way, you have to pay to live somewhere, because of the way amortization schedules work, only a small portion of your monthly mortgage payments go towards building equity in your home (even smaller than you probably think!). Most of your monthly payments are going towards paying the bank interest, which can also be seen as throwing away money. Some say you are better off renting unless you plan on being in the home more than 5 years because of this reason. Plus there are added costs that come up when you own a home, like property taxes, insurance, maintenance, and repairs.

• You’re getting married. Time to buy a house together.

  • Give yourself time to get settled, decide on a location together, do you research, and especially, learn to manage your finances together before you jump right in to buying a home. There are enough changes going on at this point in your life, so don’t be in a rush to get in a house just because you think it is what you are expected to do next. Take the time to find a home you love that is in your price range and meets all of your other requirements. That being said, my fiancé and I bought our house together right before getting married, and it (hopefully?!) was the right decision for us.

• The real estate market is only getting more expensive. You must buy now.

  • You should really wait until the time is right for you, and not just buy because of the market. Do you have an adequate emergency fund saved? Have you saved to cover the down payment without depleting your emergency fund? Do you have other debts that should be paid off first? All of these factors should be worked out before you try and buy a home. When the time is finally right for you to buy, don’t fret…there will still be houses on the market!

• Buying a house is a good investment.

  • It takes years to build equity in a home. The market must cooperate. You will undoubtedly have costs coming up that detract from your “return.” Your primary home should not be looked at as an investment only.

So if you are looking to be a first-time homebuyer: take a step back, don’t be in a rush, and consider all of the factors. It is important to be sure that you are financially ready to buy a home, and if not, continuing to rent may be the best option for you for more reasons than one.

Melissa Parkins, CFP® is an Associate Financial Planner at Center for Financial Planning, Inc.®

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The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete. Opinions expressed are those of Melissa Parkins and are not necessarily those of Raymond James. Raymond James Financial Services, Inc. does not provide advice on mortgage issues. These matters should be discussed with the appropriate professional.

How to Make Grants from Donor-Advised Funds

Contributed by: Matthew E. Chope, CFP®

I talk to a lot of clients who have set up Donor-Advised Funds or family foundations and are confused. They’ve figured out how to put money in, but how to make grants isn’t always as clear. The IRS prohibits using these funds to satisfy a pledge. That doesn’t prohibit you from supporting organizations like churches, but it does mean you need to follow certain steps.

The first step is to talk to your attorney and your CPA. They can give you tax and legal advice about making a grant. Carla Hargett, the Vice President of Raymond James Trust, told me if you’re planning on giving to your church, for example, she believes the best way to handle the Donor-Advised Fund Grants is to start by discharging any pledge made in the past. Donor-Advised Funds cannot be used to satisfy a pledge. You can let your church know you intend to provide General Support for a certain amount of money and year(s) going forward. The amount can be close to an amount you’ve given in the past – that’s up to you. But any legally enforceable pledges must be cancelled first. This should stop the audit trail if the IRS ever decides to get into the particulars with a grantor. So make sure the grant requests from your Donor-Advised Fund should say something like "2016 General Support.”  

When pledge time comes around, I recommend that you write on the pledge card something like, "I intend to request a distribution of $XXXX.XX from my Donor-Advised Fund during the 20XX fiscal year." Your church or charitable organization will be familiar with this language and can use it for budget planning similar to a pledge.

We just want to make sure that Grantors of donor-advised funds are doing things as accurately as possible and if an IRS auditor someday digs into your grants, you’ll have nothing to worry about.

Matthew E. Chope, CFP ® is a Partner and Financial Planner at Center for Financial Planning, Inc. Matt has been quoted in various investment professional newspapers and magazines. He is active in the community and his profession and helps local corporations and nonprofits in the areas of strategic planning and money and business management decisions.

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The information contained in this blog does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Matt Chope and not necessarily those of Raymond James. Prior to making an investment decision, please consult with your financial advisor about your individual situation. Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.

Rio Olympics: A Lesson in Commitment

Contributed by: Nick Defenthaler, CFP®

If you’re like me, you spent the majority of your nights this month tuning into the Summer Olympics held in Rio de Janerio, Brazil. I’m more of a football and hockey type of guy but I must admit, watching some of the best athletes in the entire world compete for their respective countries, even in sports I wouldn’t consider myself a die had fan in, was captivating. The level of competition was incredible and you could truly feel the passion each athlete had as they competed for gold. 

While watching the actual games and being engaged in the competition is very entertaining, what hit home the most to me was the level of commitment each athlete had, especially those who are dominant in their respective sport. Athletes like Usain Bolt, Michael Phelps, Katie Ledecky, and Simone Biles are in a league of their own when it comes to training, execution, and their overall commitment to their goals. Training is rigorous and is often times 6 – 8 hours per day 5 – 6 days a week for nearly 4 years in preparation for a 2 week competition. Just think about that for a moment. That’s over 1,000 days of hard work, persistence, consistency and probably ten additional adjectives necessary to describe what it takes to be an elite Olympic athlete. 

As you hopefully already know, setting and committing to goals are at the core of what we help clients with here at The Center. We need to know what’s important to you and what you want to accomplish to help you with your own unique situation to ensure your financial plan is aligned with what’s important to you. Often times, some might perceive this as too “touchy feely” or you might ask yourself, “Why do they want to know this stuff? They’re financial planners, aren’t they just concerned about the numbers?” Simple answer – absolutely not. Committing to goals, whether they are for your family, career, personal life or financial well-being, are critical for your success, just as they are for Olympic athletes. 

As you start to think about the goals you might have, keep in mind what Michael Phelps had to say about them – “Goals should never be easy; they should force you to work, even if they are uncomfortable at the time.” If goals were simple, they wouldn’t be fulfilling. Personally, watching the Olympics re-energized me to better commit to my own goals. Do you have a clear vision of what your goals look like? If so, are they challenging? Commit to the things that bring real value to your life and work hard to make them a reality. Life is too short not to. As always, feel free to contact your financial planner to help prioritize and strategize when it comes to these goals. 

Nick Defenthaler, CFP® is a CERTIFIED FINANCIAL PLANNER™ at Center for Financial Planning, Inc.® Nick is a member of The Center’s financial planning department and also works closely with Center clients. In addition, Nick is a frequent contributor to the firm’s blogs.

3 Reasons Discretionary Investment Management could be Right for You

Contributed by: Angela Palacios, CFP®

We all have busy lives. Whether you are getting down to business or enjoyingyour retirement to the fullest who wants to worry about missing a call from their advisor because something in their portfolio needs to be changed? Perhaps cash needs to be raised to meet that monthly withdrawal to your checking account so you can keep paying your traveling expenses. Or money has to be deposited to your investment account, if you are still saving, and needs to be invested. Regardless of your situation, many investors find it difficult to make time to manage their investment portfolios. We argue this is far too important to be left for a moment when you happen to have some spare time. 

What is Discretionary Management?

It is the process of delegating day-to-day investment decisions to your financial planner. Establishing an Investment Policy Statement that identifies the guidelines you need your portfolio managed within is the first and arguably the most important step. Investment decisions are then made on your behalf within the scope of this statement. It is kind of like utilizing a target date strategy in your employer’s 401(k). You tell it how old you are and when you are going to retire and all of the asset allocation, rebalancing and buy/sell decisions are made for you.

3 reasons this can be a suitable option for investors:

1. Frees up your time to do what you love most. Time is the resource we all struggle to get our hands on. Need I say more?

2. Markets move quickly and sometimes portfolios must also to respond. Changes can happen in a timely fashion whether you are within reach on your cell phone or not.

3. May reduce the potential for poor investor behavior. Let those not emotionally charged by fluctuations in the market make decisions on your behalf.

If you have questions on whether or not this is right for you and your portfolio don’t hesitate to contact us.  We’d be happy to help!

Angela Palacios, CFP® is the Director of Investments at Center for Financial Planning, Inc.® Angela specializes in Investment and Macro economic research. She is a frequent contributor The Center blog.

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The information contained in this blog does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Angela Palacios and not necessarily those of Raymond James. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Every investor's situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment. Prior to making an investment decision, please consult with your financial advisor about your individual situation.

Unpacking Incentive Stock Options

Contributed by: Matt Trujillo, CFP®

What is an ISO?!

Some of you reading this might have been granted Incentive Stock Options (ISOs) in the past or perhaps this is something that your employer recently started to grant you. In either case it never hurts to get a refresher on what they are and some of the nuanced planning opportunities that go with them. ISOs are a form of stock option that employers can grant to employees often to reward employees' performance, encourage longevity with the company, and give employees a stake in the company's success. A stock option is a right to buy a specified number of the company's shares at a specified price for a certain period of time. ISOs are also known as qualified or statutory stock options because they must conform to specific requirements under the tax laws to qualify for preferential tax treatment.

The tax law requirements for ISOs include*:

• The strike price—the price you will pay to purchase the shares—must be at least equal to the stock's fair market value on the date the option is issued.

• To receive options, you must be an employee of the issuing company.

• The exercise date cannot be more than 10 years after the grant.

*Special rules may also apply if you own more than 10 percent of your employer's stock (by vote). Nonqualified stock options, another type of employee stock option, are separate from ISOs therefore receive different tax treatment.

Once you have been granted a stock option, you can buy the stock at the strike price even if the value of the stock has increased. If you choose to exercise a stock option, you must buy the stock within the specific time frame that was set when the option was purchased or granted to you. You are not required to exercise a stock option.

Your options may be subject to a vesting schedule developed by the company. Unvested options cannot be exercised until some date in the future, which often is tied to your continued employment. The stock that you receive upon exercise of an option may also be subject to a vesting schedule.

Assuming that a stock option satisfies the tax law requirements for an ISO, preferential tax treatment will be available for the sale of the stock acquired upon the exercise of the ISO, but only if the stock is held for a minimum holding period. The holding period determines if a sale of the stock you received through the exercise of an ISO is subject to taxation as ordinary income or as capital gain or loss.

To receive long-term capital gain treatment, you must hold the shares you acquired upon exercise of the option for at least:

• Two years from the date you were granted the option, and

• At least one year after the date that you exercised the option

So whether this is something new to you or something you’ve been handling for a long time, feel free to contact us with questions regarding the nuances around Incentive Stock Options.

Matthew Trujillo, CFP®, is a Certified Financial Planner™ at Center for Financial Planning, Inc.® Matt currently assists Center planners and clients, and is a contributor to Money Centered.

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This information does not purport to be a complete description of Incentive Stock Options, this information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Investing in stocks always involves risk, including the possibility of losing one's entire investment. Specific tax matters should be discussed with a tax professional.

Recent Mortgage Rate Decline may offer Financial Opportunities

Contributed by: Nick Defenthaler, CFP®

Over the past month, interest rates on mortgages have declined significantly, posing the question to many clients if it would make sense for them to refinance or potentially accelerate a new home purchase that they may have been considering. Many factors cause mortgage rates to decline, but the most recent cause can primarily be attributed to the UK leaving the European Union, dubbed “Brexit” (click here  to read our recent blog on this topic and don’t forget to check out our investment focused webinar as well on 7/28!). Typically, when there is a surprise in the markets or volatility spikes, there is a “flight to safety” by investors and bonds are purchased. Bonds are a bit tricky at times to understand in the sense that when bond prices rise, interest rates usually fall. This “flight to safety” caused the yield on the 10-year Treasury bond to hit an all-time low of 1.36% on July 5th. Mortgage rates typically have a direct correlation to the 10-year Treasury bond yield so when you see those rates decline, usually mortgage rates will follow suit. 

Here are some items to consider if you’re thinking of taking advantage of these once again, historically low mortgage rates:

• How long do you plan on staying in your home? There is usually a cost to refinancing and we’ve found that you typically need to live in your home for at least two to three years after the refinance to justify the fees lenders will charge.

• Lowering the payment isn’t always the best option – consider reducing the term on the loan even if it means the payment will slightly increase. Being mortgage free in retirement is a beautiful thing!

• If you have an outstanding second mortgage or home equity line of credit, consider combining them into one loan with a fixed interest rate.

• If you have an adjustable rate mortgage (ARM), now could be a great time to move to a fixed rate to avoid payment fluctuations in the future.

• Consider a modest cash-out refinance to pay down high interest rate loans or use as a low interest rate option to fund higher education costs.

• Don’t make an impulse home purchase just because mortgage rates have declined – the cost of rushing into a major decision like buying a home can cost you far more than the savings you’d see by having a very low mortgage rate.

As with any major financial decision, such as a refinancing or a new home purchase, we encourage all of our clients to reach out to us before making a final decision so we can ensure it is in their best interest for their own personal situation. Please don’t hesitate to reach out if you’d like to talk through your options and see if changing your mortgage rate or term aligns with your overall financial plan and goals. 

Nick Defenthaler, CFP® is a CERTIFIED FINANCIAL PLANNER™ at Center for Financial Planning, Inc. Nick is a member of The Center’s financial planning department and also works closely with Center clients. In addition, Nick is a frequent contributor to the firm’s blogs.

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The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. . Any opinions are those of Nick Defenthaler and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Investments mentioned may not be suitable for all investors. Prior to making an investment decision, please consult with your financial advisor about your individual situation.

Webinar in Review: Taking Control of your Student Loans

Contributed by: Clare Lilek

If you or a loved one has student loans, then you know it’s easy to feel overwhelmed at times. According to The Institute of College Access & Success, 70% of undergraduates have student loan debt of $35,000 on average upon graduating. Moreover, these numbers and percentages increase with degree level. With increasing numbers of Americans with student loan debt and the fact that managing multiple loans of various types and interest rates can cause confusion, Melissa Parkins, CFP®, and Kali Hassinger, CFP®, hosted a webinar on the subject in order to provide some clarity.

First, it’s important to determine whether you have federal or private loans; there are various sub-categories of loan types for federal loans. The majority of loans you will come in contact with are federal loans and they tend to have fixed-interest rates and the possibility of flexible repayment plans. Private loans tend to have less flexible repayment plans and interest rates are determined by credit scores.

Federal loans tend to be considered the preferred type of loan. They offer flexible repayment plans, varied interest rates, loan consolidation options, and the possibility of loan forgiveness (note on loan forgiveness: if you still owe money at the end of your federal loan period, the government will forgive that loan but the remainder will be taxed as income that year). Private loans, however, tend to be more straight forward since there is a standard repayment plan that is not based on your income.

One big tip Melissa and Kali offered is first getting organized with your loans. Create a list that outlines the type of loan, the lender, interest rates, and the term. (For help with creating this inventory check out Melissa’s latest blog on the subject.) They also offered a helpful flow chart for deciding whether or not you should refinance your federal loans:

Taken from Social Financial, Inc

At the end of the webinar, Melissa and Kali went over an in depth case study looking at specific examples of loans and potential refinancing options to save you money and to pay back your loans at a faster rate. Listening to this case study can provide more clarity on how creating a loan inventory may help you save money in the long run.

If you have questions regarding your own student loans, listen to the webinar and see if any of the information applies to you. As always, feel free to reach out to your financial planner or Melissa and Kali for any remaining follow up questions or to talk about your specific situation.

Clare Lilek is a Challenge Detroit Fellow / Client Service Associate at Center for Financial Planning, Inc.

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The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of and Clare Lilek, Melissa Parkins and Kali Hassinger not necessarily those of Raymond James. Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional. Prior to making an investment decision, please consult with your financial advisor about your individual situation.

Your Early Retirement and Your Aging Parents

Contributed by: Sandra Adams, CFP®

Last month, I wrote about how caring for aging parents can be a roadblock to planning for your retirement, particularly if you don’t have an aging plan in place for your parents. Well, let’s assume you successfully make your way to retirement. You’ve made it to the promised-land and are ready to do all of those things you’ve dreamed of doing for years…travel, spend more time with the kids and grandkids, and explore those hobbies you haven’t had time to enjoy.

And then…bam! Your parents are now older and in need of your assistance, just in time! On the one hand, it is perfect – you no longer have the stress of needing to balance work with the stress of caregiving, and you can give them your undivided time and attention. But on the other hand, this is now your time…the time you’ve waited years to enjoy…not to spend tied to someone else’s schedule and needs. For many retired couples, they are the primary caregivers for not one, but multiple sets of aging parents, which only adds to the stress (not to mention the marital tension!). Many are worried that their retirement will be spent caring for aging parents; or that by the time the caregiving is done, they will need a caregiver themselves!

So what can you do to ease the family stress and give your retirement a needed boost?

• Make sure that you and your family have planning conversations about the care for your aging parent and that you have a Family Care Agreement in place outlining everyone’s roles and responsibilities.

• Consider having professional resources that you can use, when and if needed, to give family members breaks (i.e. Home Care Agencies, Geriatric Care Managers and Professional Physicians that can serve as advocates in your absence, paid companions and drivers, etc.).

• Look into Respite Care Centers where your aging parent can stay for a short period of time and be safe and well cared for while you are away (if they are unable to stay alone).

Again, if possible, planning ahead is always critical. Knowing the available resources (and then actually using them) is an important part of the process. Caring for your loved ones yourself and being their personal advocate is something people take very seriously. But taking care of you, including taking some time off and tending to other personal relationships, is the key to a happy and healthy life. So, I strongly advocate for families sharing responsibilities and/or taking advantage of professional advocates like Geriatric Care Managers or Professional Physicians that serve as advocates so that they can take time off from full time caregiving. Taking advantage of such resources can allow for better quality personal lives and better quality time and caregiving with your aging parent in the long run.

If you have questions or wish to discuss this type of planning in greater detail, do not hesitate to contact me.

Sandra Adams, CFP® is a Partner and Financial Planner at Center for Financial Planning, Inc. Sandy specializes in Elder Care Financial Planning and is a frequent speaker on related topics. In addition to her frequent contributions to Money Centered, she is regularly quoted in national media publications such as The Wall Street Journal, Research Magazine and Journal of Financial Planning.

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Any opinions are those of Sandra Adams and not necessarily those of Raymond James. Prior to making an investment decision, please consult with your financial advisor about your individual situation.

Millennials Matter: Student Loans

Contributed by: Melissa Parkins, CFP®

The average 2016 college graduate will have just over $37,000 in student loan debt upon completing their undergraduate degree. If it is a graduate degree they have just earned, the average debt is almost $60,000. When it comes to more specialized degrees such as a master’s degrees, law degrees, or medical degrees, the number dramatically increases (up to $250,000!). These numbers are up 6% from last year. Clearly the questions about student loan debt are not going away. This is a complex topic to understand, and it has big impact on people’s financial situations. Loans are taking longer to pay off and thus more interest is being paid, making them more and more expensive to have. That’s why it is important to understand student loans and know your potential options so you can create an efficient plan for paying them off.

Determine Your Goal

For most, your goal is going to be to minimize the cost of your student loans and pay them off as quickly as possible. However, some may have a goal to maximize federal loan forgiveness if they will qualify. Others may have a goal to free up current cash flow and thus need to find a way to lower monthly payments. Whatever your overall goal is for your student loans, you will need to first get yourself organized, and then create a plan to help get you there.

Make a Student Loan Inventory

Whether you are planning on making changes to your loans or not, it is important to first build an inventory of all of your student loans to keep yourself organized. Your inventory should include information on each individual loan like your current balance, monthly payment, interest rate, remaining term, loan servicer, if it’s private or federal, and if federal, what type of loan and what repayment plan you’ve selected.

• For your federal loans, you can utilize the National Student Loan Data System to get all of the necessary information. You will need to create a login if you don’t already have one. Once you are logged in, you can access information regarding all of your federal loans.

• For private loans, there is not one single resource that you can use to collect information like the NSLDS for federal loans. Instead, you will need to contact each of your private lenders to obtain the details of your loan and/or request a copy of the Promissory NOTE: If you are unsure who all your lenders are or you just want to double check that you have        accounted for all of your loans, you can actually use your credit report to find out. If you didn’t already know, you can download a copy of your credit report from annualcreditreport.com at no cost once a year with each of the 3 credit bureaus. All of your student loans – federal and private – will show up on your credit report. You can then compare the loans from your credit report to the loans on your NSLDS inventory to determine what private loans are currently outstanding.

Know Your Options

You know your goal and you have an inventory of all your student loans with the important details. Now you need to consider what changes to make in order to most efficiently meet your goal.

• Federal loans have many different repayment plans that you can choose from, including a few that are based on your current income level. The repayment plans that you are eligible for depend on what type of federal loan you have and when it was taken out. You can switch between repayment plans whenever you want, but you should thoroughly review your situation before doing so because it is not the most straight-forward process and changing plans can impact your loans in some instances. Depending on your goal, however, switching repayment plans may be in your best interest.

• Consolidating federal loans will give you a single monthly payment and access to additional repayment plans in some instances. The interest rate on a new consolidation loan is a weighted average of the loans that were consolidated (your interest rate is not lowered). At consolidation, you can select a new term or length of the loan, as well as a new repayment plan option. Consolidating helps to simplify your federal loans and your payments, and it is also a way to restructure your federal loans to be more suited for your personal situation.

• Refinancing is something you have probably heard about. It can be a great way to restructure your current loans in a way that is more efficient and better suited to your current financial picture. In many cases, you can get a lower interest rate which can help save significant dollars over the term of your loan. The rate you are approved for is based on your credit score, so the better your credit score, the better interest rate you will qualify for. You can refinance both private and federal loans, but before refinancing federal loans, you need to understand that you are giving up some benefits of federal loans (such as flexible repayment plans, loan forgiveness, and sometimes forbearance protection). Before refinancing, do you research, and look at multiple lenders to compare and find the best deal for your personal situation.

Student loans are very complex.  It makes sense to work with a financial planner to help you sort through your options -- we are here to help!  Contact us anytime if you would like us to take a look at your personal situation. Also, Join Kali Hassinger and me next week, Thursday, for our webinar “Taking Control of Your Student Loans.” We will be providing more in depth information on types of student loans and their certain characteristics, a few resources to help you organize your loans, and some options that could help you handle your loans more efficiently. We will also be walking you through a case study to show what this all looks like in real life and how getting yourself organized and considering different options could help you pay off your loans quicker and more efficiently! 

Melissa Parkins, CFP® is an Associate Financial Planner at Center for Financial Planning, Inc.

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This information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Melissa Parkins and are not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any outside website or the collection or use of information regarding any website's users and/or members.

Webinar in Review: Cash Balance Plans

Contributed by: Clare Lilek

Here at The Center for Financial Planning, Inc., we host webinars not only for our clients but also for other professionals who we may work with as part of the team to best serve our clients. During these webinars, our CERTIFIED FINANCIAL PLANNERS™ dive into specific topics in greater detail than you might find in a typical blog. In our latest webinar of this kind, Nick Defenthaler, CFP®, with the help of Abram Claude, Head of Value Add Programs Learning Center at Columbia Threadneedle Investments, hosted a 45 minute webinar detailing Cash Balance plans as a way to help business owners potentially accelerate retirement savings and lower taxes.

First, Abram clarified a cash balance plan as one type of defined benefit plan. He detailed the differences between a traditional defined benefit plan versus what the majority of the webinar discussed, a Cash Balance plan. Below you can reference a chart that distinguishes the two:

Typically, Cash Balance plans have been seen as an option only for larger companies, but many smaller businesses have been utilizing this retirement saving strategy because they’re usually easier to manage, they’re not as dependent on interest rate changes, and they offer the same benefit cost for the employer independent of the employee’s age or time with the company, compared to Traditional defined benefit plans.

Here are some questions to ask to determine whether or not a business might be a good fit for a Cash Balance plan:

• Does the business have a consistent, profitable history?

• Will the business have significant and consistent cash flow moving forward?

• Does the business have a budget that can support plan contributions?

• Does the business already maximize its contributions to a defined contribution plan (401k, 403b, etc.)?

• Are there multiple owners or partners?

• Do the business owners or partners want to accelerate their ability to save for retirement and save taxes?

• Is there a low ratio of non-highly compensated employees to highly compensated employees?

• Are the highly compensated employees older than the non-highly compensated employees?

• Is the company relatively small in size (e.g. fewer than 20 eligible employees)

The more “yes,” responses, the greater possibility that a Cash Balance plan might be a good fit for your business or your clients!

For more information, watch the webinar below as Nick and Abram go into the details surrounding the mechanics of these plans, along with helpful examples to illustrate the potential benefits of a Cash Balance plan. If you have any questions after watching the webinar, please feel free to call the office or reach out Nick Defenthaler, CFP®, and we’d be happy to help!

The information contained in this blog does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Clare Lilek and and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Prior to making an investment decision, please consult with your financial advisor about your individual situation. Raymond James is not affiliated with and does not endorse the opinions or services of Abraham Claude.

Clare Lilek is a Challenge Detroit Fellow / Client Service Associate at Center for Financial Planning, Inc.

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Raymond James is not affiliated with and does not endorse the opinions or services of Abram Claude and/or Columbia Threadneedle Investments.