Can You Roll Your 401(k) to an IRA without Leaving Your Job?

Co-Contributed by: Nick Defenthaler, CFP® and Matt Trujillo, CFP®

Typically, when you hear “rollover” you think retirement or changing jobs.  For the vast majority of clients, these two situations will really be the only time they will complete a 401k rollover.  However, you might not know about another type of situation in which you can move funds from your company retirement plan to your IRA.  This is what’s known as the “in-service” rollover and is an often overlooked planning opportunity. 

Rollover Refresher

A rollover is a pretty simple concept.  It is the process of moving your employer retirement account (401k, 403b, 457, etc.) over to an IRA that you have complete control over and is completely separate from your ex-employer.  Most people do this when they retire or switch jobs.  If completed properly, rolling over funds from your company retirement plan to your IRA is a tax and penalty free transaction because the tax characteristics of a 401k and IRA are generally the same.   

What is an “in-service” rollover?

Unlike the “traditional” rollover, an “in-service” rollover is probably something you’ve never heard of and for good reason.  First, not all company retirement plans allow for it, and second, even for those that do, the details can be confusing to employees.  The bottom line: An in-service rollover allows an employee (often at a specified age such as 55) to be able to roll their 401k to an IRA while still employed with the company.  The employee is also still able to contribute to the plan, even after the rollover is complete.  Most plans allow this type of rollover once per year, but depending on the plan, you could potentially complete the rollover more often for different contribution types.

Why complete an “in-service” rollover?

More investment options – With any company retirement plan, you will be limited to the investment options the plan offers.  By having the funds in an IRA, you can invest in just about any mutual fund, ETF, stock, bond, etc.  Having access to more options can potentially improve investment performance, reduce volatility and make your overall portfolio allocation more efficient.

Coordination with your other assets – If you’re working with a financial planner, he or she can coordinate an IRA into your overall plan far more efficiently than a 401k.  How many times has your planner recommended changes in your 401k that simply don’t get completed? (Tisk, tisk!)  If your planner is managing the IRA for you, those recommended changes are going to get completed instead of falling off your personal “to-do” list.     

Additional flexibility – IRAs allow certain penalty-free withdrawals that aren’t available in a 401k or other company retirement plans (certain medical expenses, higher education expenses, first time homebuyer allowance, etc.).  Although using an IRA for these expenses should be a last resort, it’s nice to have the flexibility if needed.

Exploring “in-service” rollovers

So what now?  The first thing is to always keep your financial planner in the loop when you retire or switch jobs to see if a rollover makes sense for your situation.  Second, let’s work together to see if your current company retirement plans allows for an in-service rollover.  It’s typically a 5 minute phone call with us, you and your HR department to find out.  With so many things going on in life, an in-service rollover is probably pretty close to the bottom of your priority list.  This is why you have us on your financial team. We bring these opportunities to your attention and work with you to see if they could benefit your situation! 

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 Money Centered and Center Connections blogs.

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 material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of Nick Defenthaler, CFP® & Matt Trujillo, CFP®, and not necessarily those of Raymond James. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. IRA withdrawals may be subject to income taxes, and prior to age 59 1/2 a 10% federal penalty tax may apply. In-Service Rollovers mentioned may not be suitable for all investors. Be sure to contact a qualified professional regarding your particular situation before electing an In-Service Rollover. You should discuss any tax or legal matters with the appropriate professional. Investing involves risk and investors may incur a profit or a loss.

3 Steps for Coping with Financial Roadblocks

Contributed by: Laurie Renchik, CFP®, MBA

Going through a divorce or changing jobs can put your life in a spin. That wasn’t in your plan, so what’s next? Getting financial facts together, especially during a significant change in life, can easily get shifted to the back burner. I see these kinds of life events as potential financial roadblocks.  When you begin navigating through a financial roadblock, all of the answers may not be clear upfront.

Undoubtedly there are options and trade-offs involved.   People worry that they lack knowledge on financial topics.  If you find yourself in a position where financial planning in that moment seems overwhelming, intimidating, or you are just plain fearful of making a mistake, I recommend starting with these three steps to simplify, organize, focus and ultimately overcome your financial roadblock:

1. Create a realistic post-financial change budget.  This could be post-retirement, post-divorce or post-career change.  Maybe you haven’t paid enough attention to what you are spending or saving. You need to take into consideration a change in income. This fundamental step will help you understand what you can or need to do.

2. Invest in yourself by putting together a snapshot of your financial health.  This is accomplished with a personal net worth statement. The formula to use is:  Assets – liabilities = net worth.  There are a number of reasons why preparing a net worth statement is a good move.  It gives you a one page reality check to use as a planning tool, you can check progress toward financial objectives and it can help you identify potential red flags like an emergency fund that has dipped too low or debt that is rising faster than anticipated.

3. Address financial decisions proactively.  Instead of guessing or letting things roll along, begin by thinking about financial goals and obligations on a timeline.  This can be as simple as prioritizing in 3 buckets.  What do I have to do now (immediate action)? What can be tackled soon (big picture prep steps)? And what can be done later (accomplished after the priorities are under control)?

You may not know all of the answers today, but this exercise will at least help simplify, organize, and address the financial issues that are weighing on your mind. If you need help navigating through a financial change due to divorce or a career move don’t hesitate to call or email me.    

This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of Laurie Renchik and not necessarily those of Raymond James. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. 

Laurie Renchik, CFP®, MBA is a Partner and Senior Financial Planner at Center for Financial Planning, Inc. In addition to working with women who are in the midst of a transition (career change, receiving an inheritance, losing a life partner, divorce or remarriage), Laurie works with clients who are planning for retirement. Laurie was named to the 2013 Five Star Wealth Managers list in Detroit Hour magazine, is a member of the Leadership Oakland Alumni Association and in addition to her frequent contributions to Money Centered, she manages and is a frequent contributor to Center Connections at The Center.

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Five Star Award is based on advisor being credentialed as an investment advisory representative (IAR), a FINRA registered representative, a CPA or a licensed attorney, including education and professional designations, actively employed in the industry for five years, favorable regulatory and complaint history review, fulfillment of firm review based on internal firm standards, accepting new clients, one- and five-year client retention rates, non-institutional discretionary and/or non-discretionary client assets administered, number of client households served.

Boomerang Drain: Can an Adult Child Derail your own Financial Goals?

Contributed by: Timothy Wyman, CFP®, JD

You’ve raised your children, launched them out into the world, and cut the purse strings, right? For many of us, the answer is no. Financially caring for those that left the nest but not the wallet is a sensitive subject, but a real one when it comes to planning for your own retirement. The National Center for Policy Analysis reports that more than half of parents of 18 to 39 year olds are providing some support:

59% of baby boomer parents financially support their adult children, often paying living expenses, medical bills and student loans.

For most of us, there is a relatively set amount of money/cash flow to work with.  If we spend more on financial support for adult children, this leaves less for other areas such as travel and/or saving. This is not making a judgment if such support is right or wrong. It is just math. 

Tactics for Setting Goals and Boundaries

If you find yourself wanting to provide financial support, consider setting both goals and boundaries.  Ask yourself these questions:

1. What expenses are you willing to contribute?

2. How long do you want to contribute? 

3. What are the expectations of your child?

In the past, I have worked with clients that have decided to provide financial support to their “boomerang” child.  They were glad that they were in the financial position to do so and acknowledged that some of their own plans were being put on hold because of their choice.  The parents set a 2-year window for their child, a son in this case, and laid out their expectations. It looked something like this:

• They decided they were willing to pay for their adult child’s rent and car for 3 months at 100%

• The next three months they covered 50% of the rent

•  After that, the child was fully responsible for the payment

 The plan worked out well for all of them and now mom and dad are back to enjoying the empty nest years.

More Retirement Goal Drains

Boomerang drain is just one of the pitfalls or obstacles to avoid if you want your empty nest years feel like being, “In college, only with money.” Many of us simply don’t make the time to plan what we want your empty nest years to be (here are my tips on that). Another obstacle can be debt, which doesn’t have to be a four-letter word.  Managing the use of credit is an important component to building and maintaining wealth and having flexible cash flow to accommodate travel or ramping up your savings for retirement. For more strategies on managing debt, click here.

When it comes to reaching retirement goals, I’m a where there’s a will, there’s a way kind of person. Is the glass half full or half empty? I prefer it filled to the rim with a napkin underneath to catch any potential drips. We all face challenges in retirement planning. The important part is overcoming those challenges by filling that glass to overflowing … and I’ve seen many clients do it over the years. If you are an empty nester facing any of these potential drains on your goals, talk to your financial planner. 

Timothy Wyman, CFP®, JD is the Managing Partner and Financial Planner at Center for Financial Planning, Inc. and is a frequent contributor to national media including appearances on Good Morning America Weekend Edition and WDIV Channel 4 News and published articles including Forbes and The Wall Street Journal. A leader in his profession, Tim served on the National Board of Directors for the 28,000 member Financial Planning Association™ (FPA®), trained and mentored hundreds of CFP® practitioners and is a frequent speaker to organizations and businesses on various financial planning topics.

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This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of Timothy Wyman, CFP® and not necessarily those of Raymond James. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete.

What to Consider Before You Buy a Second Home

Contributed by: Timothy Wyman, CFP®, JD

Well it’s that time of year again.  No not the cold and flu season – well actually it’s that time too.  Rather, I am talking about the time of year where my wife and I go up north for a few days and after a fantastic 24 hours have the conversation.  You know, should we buy our own vacation home/condo rather than mooch off our friends (hey they are good friends)? It’s a question that many of my Empty and Soon-to-be-Empty Nester clients ask.

First Steps to a Second Home

Our friends, we will call them John & Michelle to protect their identity, decided a few years ago to purchase a condo in God’s Country (that’s northern Michigan….not way up North).   So far the purchase has worked out well and I think they did a few things right.  They actually bought the condo with another family as they knew neither of them would use the condo fully on their own.  They spelled out their “parenting” time or who had first right of refusal for each Holiday.  And last but not least, they formed a Limited Liability Company (LLC) to own the property in order to shield other personal assets from potential liability. All in all, the purchase has been wonderful for us…..er I mean them.

Consider the “Carrying” Costs

For a short period of time a second home or vacation home sounds like a wonderful idea to us (wine is involved in many instances).  However, after a few minutes we decide that it is not for us.  Although interest rates are low, making the cost more manageable, we have some other financial priorities at this time.  Also, many folks do not fully consider, or fully appreciate, the “carrying” costs of owning a second home.  The real or total cost of owning a second home is much more than principal & interest payments.  Additional costs can include:

• Property taxes

• Association dues

• Utilities

• Insurance

• Repairs & maintenance (necessary year round, whether or not you’re there)

Additionally, simply furnishing and updating two homes is no cheap undertaking. For now, we are content renting for the couple of times that we make it up north. 

3 Factors in Buying a Second Home

That said, I wouldn’t be surprised if we decide to make a second home purchase in the future – for lifestyle purposes rather than investment.  And if we do, we’ll make the following a part of our decision-making process:

• Use: Do we expect to use it more than just a couple of weeks? If so then buying may make sense.

• Location: What area makes sense now and in the future? Are we willing to drive X hours?

• Price: What price point will still allow us to fund retirement savings? What are the ongoing expenses?

Adding a second home can have wonderful lifestyle benefits.  Many a family has built cherished memories thanks to the family cottage.  Make sure you weigh the full cost of owning a second home with the desired lifestyle benefits.

Timothy Wyman, CFP®, JD is the Managing Partner and Financial Planner at Center for Financial Planning, Inc. and is a frequent contributor to national media including appearances on Good Morning America Weekend Edition and WDIV Channel 4 News and published articles including Forbes and The Wall Street Journal. A leader in his profession, Tim served on the National Board of Directors for the 28,000 member Financial Planning Association™ (FPA®), trained and mentored hundreds of CFP® practitioners and is a frequent speaker to organizations and businesses on various financial planning topics.

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This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of Center for Financial Planning, Inc. and not necessarily those of Raymond James.

NUA: Answering 7 Questions about Net Unrealized Appreciation

The financial planning profession is full of acronyms such as RMD, IRA, TSA and NUA. One acronym making a comeback due to the increase in the US Equity market is “NUA”. NUA stands for net unrealized appreciation and anyone with a 401k account containing stock might want to better understand it. NUA comes into play when a person retires or otherwise leaves an employer sponsored 401k plan. In many cases, 401k funds are rolled over to an IRA. However, if you hold company stock in the 401k plan, you might be best served by rolling the company stock out separately.

Before getting to an example, here are the gory details: The net unrealized appreciation in securities is the excess of the fair market value over the cost basis and may be excluded from the participant's income. Further, it is not subject to the 10% penalty tax even though the participant is under age 59-1/2, since, with limited exceptions; the 10% tax only applies to amounts included in income. The cost basis is added to income and subject to the 10% penalty, if the participant is under 59.5 and the securities are not rolled over to an IRA.

Suppose Mary age 62 works for a large company that offers a 401k plan. Over the years she has purchased $50,000 of XYZ company stock and it has appreciated over the years with a current value of $150,000. Therefore, Mary has a basis of $50,000 and net unrealized appreciation of $100,000.

If Mary rolls XYZ stock over to an IRA at retirement or termination, the full $150,000 will be taxed like the other funds at ordinary income tax rates when distributed. However, if Mary rolls XYZ stock out separately the tax rules are different and potentially more favorable. In the example above, if Mary rolls XYZ out she will pay ordinary income tax immediately on $50,000 but may obtain long term capital treatment on the $100,000 appreciation when the stock is sold; thus potentially saving several thousand dollars in income tax.

Here are some critical questions to review when considering taking advantage of this opportunity:

Have you determined whether you own eligible employer stock within your workplace retirement plan?

Have you determined whether you have a distribution triggering event that would allow you to take a lump sum distribution of your employer stock from your plan?

Have you discussed the special taxation rules that apply to lump sum distributions of employer stock and NUA?

• Cost basis taxable as ordinary income

• Net unrealized appreciation taxable at long term capital gains rates when stock is sold

Have you discussed the criteria necessary to qualify for NUA’s special tax treatment?

• Qualifying lump sum distribution including stock of the sponsoring employer taken within one taxable year

• Transfer of stock in kind to a brokerage account

• Sale of stock outside of the current qualified plan

Have you discussed the pros and cons of rolling over your employer stock into an IRA, taking into consideration such things as available investment options, fees and expenses, services, taxes and penalties, creditor protection, required minimum distributions and the tax treatment of the employer stock?

Have you discussed the pros and cons of selling your employer stock within the plan, including the need for proper diversification?

Have you discussed with your tax advisor whether a NUA tax strategy would be beneficial from a tax planning perspective given your current situation?

These are a handful of the key questions that should be considered when deciding whether or not this opportunity makes sense for you. Professional guidance is always suggested before making any final decisions.

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 material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of Matt Trujillo, CFP® and Tim Wyman, CFP® and not necessarily those of Raymond James. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Strategies mentioned may not be appropriate for all investors.

Fixed Annuities in Retirement

Who doesn’t like a level of certainty in life?  In a world full of unknowns, it’s human nature to feel more secure by having some type of guarantee.  For some, this might mean holding a certain amount of cash in the bank or having your home paid off in retirement, but the topic I’m tackling in this blog is fixed income sources in retirement.  Traditionally this meant a pension, social security, and annuity income.  However, with pension plans now being about as common as seeing a walkman CD player and social security having its own issues, I think it makes sense to explore other options to provide a guarantee for a portion of your retirement income need.

The 50% Fixed Income Rule of Thumb

One of the many questions we discuss with clients when working with them on their financial plan (especially when they are approaching retirement) is how much of their spending goal should be comprised of fixed income sources?  Ideally, we would like to see that percentage around 50%, but every client situation is different.  So if the annual spending goal is $100,000 gross, $50,000 of fixed income sources (social security, pension or annuity income) is desirable with the remainder of income being drawn from a well-balanced, diversified portfolio.  However, depending on the client’s risk tolerance and other assets, it could make sense to have that percentage higher or lower. 

The Bygone Pension Era

Since one of the main fixed income sources for a retiree was a company pension – now virtually non-existent – it’s often up to you. The burden has been placed on the employee to fund their own retirement through a 401k, 403b or other defined contribution plan.  While company matches certainly help the employee, they don’t come close to offering the same lifetime income benefit a pension provides.  As such, it could make a lot of sense to explore the option of utilizing a fixed annuity for part of your retirement need. 

Making Room in your Plan for Annuities

Annuities don’t make sense for everyone and they have rightfully received a bad rap. Many of them are expensive and were “sold” in situations where it just didn’t make sense for the client based on their needs and their personal situation.   However, annuities are around for a reason, because they can fit the need for certain clients for a PORTION of their financial plan.  With so many different options for income, annuities typically place the burden of risk on the insurance company offering the annuity for a guaranteed stream of income.  Having a portion of your spending goal met by a fixed income source, such as an annuity, gives many clients an added layer of peace of mind, knowing that the income stream will be there regardless of what the market is doing. 

In summary, annuities can have a place in your financial plan but like anything financial, they don’t make sense for everyone.  This is our job, as your financial team member, to work with you to see if they have a place in your plan.  Don’t cringe when you hear the word “annuity” like many do. Please have an open mind because they could play a very important role in your retirement!

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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 Money Centered and Center Connections blogs.

This material is being provided for information purposes only and is not a complete description, nor is it a recommendation to buy or sell any investment. Any opinions are those of Center for Financial Planning, Inc. and not necessarily those of Raymond James. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. There are special risks associated with investing in bonds (fixed income) such as interest rate risk, market risk, call risk, prepayment risk, credit risk, and reinvestment risk. Investing involves risk and investors may incur a profit or loss regardless of strategy selected. 

A fixed annuity is a long-term, tax-deferred insurance contract designed for retirement. It allows you to create a fixed stream of income through a process called annuitization and also provides a fixed rate of return based on the terms of the contract. Fixed annuities have limitations. If you decide to take your money out early, you may face fees called surrender charges. If you're not yet age 59½, you may also have to pay an additional 10% tax penalty on top of ordinary income taxes. A fixed annuity contains guarantees and protections that are subject to the issuing insurance company's ability to pay for them.

Smart Moves to Make the Year You Retire

So you’ve decided to hang ‘em up? Congratulations!  Retirement is an extremely personal decision and is made for a multitude of reasons.  Many of our clients have had the ability to retire for several years, however, they have now reached a point where the weekly grind isn’t as enjoyable as it once was.  There are probably thousands of things running through your head.  What will life look like without work?  How will I spend my days?  Where do I/we want to travel?  Do I want to work part-time or volunteer?  With so many emotions and thoughts, it can be easy to miss good opportunities to really maximize your final year of full-time work. How do you get the most “bang for your buck” in your final year of working full-time?

Maximizing your employer retirement contribution (401k, 403b, etc.)

If you aren’t doing so already, do your best to maximize your company retirement plan contribution.  If you are retiring mid-year, adjust your payroll deduction to make sure you are contributing the maximum ($24,000 for those over the age of 50 in 2015) by the time you retire.  If monthly cash flow won’t allow for it, consider using money in a checking/savings or taxable account to supplement your cash flow so you can put the max into the plan.  This will most likely be the final year you will be in the highest tax bracket of your life, you really want to take advantage of this and get the maximum tax benefit. 

“Front-load” your charitable contributions

If you are charitably inclined and plan on making charitable gifts, even into retirement, you might consider “front-loading” your donations.  Think of it this way – if you are currently in the 25% tax bracket and you will drop into the 15% bracket when retired, donating in which year will give you the most tax savings by making a donation?  The year you are in the higher bracket, of course!  So if you donate $5,000/year to charity, consider making a contribution for $25,000 while you are in the 25% bracket (ideally with appreciated securities).  This would satisfy five years worth of donations and save you more on your taxes.  As I always tell clients: When you save more money on your tax bill by gifting efficiently, you give less to the IRS’ and more to the organizations you care about!

Explore your health care options

This is typically a retiree’s largest expense.  How will you and your family go about obtaining medical coverage upon retirement?  Will you continue to receive benefits on your employer plan?  Will you go on COBRA?  Will you be age 65 soon and enroll in Medicare?  Are you retiring young and need to obtain an individual plan until Medicare kicks in?  No matter what your game plan, make sure you talk to the experts and have a firm grip on the cost and steps you need to take to ensure you don’t go without coverage and that it’s as affordable as possible.  With recent changes in health care, we are positioning more and more clients in a way to qualify for health care premium subsidies under the Affordable Care Act (“Obamacare”). For more information on how you might qualify, take a look at Matt Trujillo’s recent blog on this topic.

With so many moving parts, it really makes sense to have someone in your corner to help you navigate through these difficult and sometimes confusing retirement topics and decisions.  Ideally, seek out the help of a Certified Financial Planner (CFP®) to give you the comprehensive guidance you need and deserve!

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 Money Centered and Center Connections blogs.

Any opinions are those of Center for Financial Planning, Inc. and not necessarily those of RJFS or Raymond James. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional. C14-041996

Reconsidering Reverse Mortgages

I always thought of reverse mortgages as a last resort for retirees who had spent down their retirement savings and needed more income in retirement.  The reason why I felt this way, and perhaps why a lot of people had learned to dislike these products, was because of the high fees and interest embedded in the product.  However, with recent changes to various mortgage programs, it may be worth taking a closer look.

Last resort or income stream?

Let’s begin by first looking at how these products used to work and why they typically weren’t advisable except as a last resort.  For a lot of retirees, one of their largest assets is the equity in their houses.  Unfortunately, other than providing shelter, a house doesn’t have a lot of financial benefit.  You might still carry a mortgage in retirement; you pay property taxes, home owners insurance, utility bills, and the occasional home repair.  All of these are money out of your pocket, but when is the last time your house paid you?  Enter the reverse mortgage….a potential way to create an income stream (or lump sum) which can turn the house into a more meaningful asset rather than a money pit.  Everything sound good so far?  Not so fast! The problem is that, in the case of a married couple, the bank used to come knocking at the first death and demand repayment of the income stream plus interest that had been accruing the whole time.  Can’t afford to pay that back all at once? No problem…the bank will just sell the house from under you, take their money back, and give the survivor the remainder (if any) so they can go and try to find a new place to live.  All of a sudden this program doesn’t sound so good.

Reverse mortgages get a make-over

This idea of the survivor losing their house was the primary reason why I rarely recommended clients consider these products in a serious manner. However, in 2013 there were major revisions to how a lot of these products were structured. The fees still seem to be fairly high, but no longer is the bank able to sell the property out from under the survivor.  Now the repayment of the loan isn’t due until both people have died.  With these new changes, it may be worth taking a look at tapping into your home’s equity, knowing that you and your spouse won’t have to leave your house unless you want to.  Work with your financial professional to understand more fully if this type of product might make sense for your specific situation.

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.

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 information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. This is not a solicitation or recommendation for a reverse mortgage strategy. Any opinions are those of Center for Financial Planning, Inc. and not necessarily those of RJFS or Raymond James. There are significant costs associated with Reverse Mortgages, such as: up-front mortgage premium, annual premium, origination fee, closing costs, monthly services charge, and appraisal fees. There are significant risk associated with Reverse Mortgages. Generally, the homeowner is still obligated to pay taxes, insurance, and maintenance and if the borrower moves, the loan becomes due, and the total amount due may be larger than anticipated or planned for. Medicaid may also be affected. C14-040266

Capital Gains: 3 Ways to Avoid Buying a Tax Bill

Many asset management firms have started to publish estimates for what their respective mutual funds may distribute to shareholders in short- and long-term capital gains. Moreover, early indication is that some firms will be paying out capital gains higher than recent years. As you may be aware, when a manager sells some of their holdings internally and realizes a gain they are required to pass this gain on to its shareholders. More specifically, by law and design, asset management firms are required to pay out 95% of their realized dividends and capital gains to shareholders on an annual basis. Many of these distributions will occur during November and December. Remember this is only relevant for taxable accounts; capital gain distributions are irrelevant in IRA’s or 401k’s.

Capital gain distributions are a double edged sword.  The fact that a capital gain needs to be paid out means money has been made on the positions the manager has sold. The bad news – the taxman wants to be paid.

What can we do to minimize the effect of capital gain distributions:

1. We exercise care when buying funds at the end of the year to avoid paying tax on gains you didn’t earn, and in some cases hold off on making purchases.

2. We may sell a current investment before its ex-dividend date and purchase a replacement after the ex-dividend date.

3. Throughout the year we harvest tax losses, when available, to offset these end of the year gains. 

As always, there is a balance to be struck between income tax and prudent investment management.  Please feel free to contact us if you would like to discuss your personal situation.

This material is being provided for information purposes only and is not a complete description of all available data necessary for making an investment decision, nor is it a recommendation to buy or sell any investment. Every investor’s situation is unique and you should consider your investment goals, risk tolerance, tax situation and time horizon before making any investment decision. Any opinions are those of [insert FA name] and not necessarily those of Raymond James. For any specific tax matters, consult a tax professional. C14-040561

An Easy Guide to Year-End Tax Planning

With the end of the year fast approaching, tax planning is top of mind for many clients.  At The Center, we are proactive throughout the entire year when it comes to evaluating a client’s current and projected tax situation, but now is typically the time most people really start thinking about it.  We like to share this simple checklistthat we feel is very user friendly and a good guide to evaluating your tax situation for the year.  Let’s be honest, does anyone feel like they don’t pay ENOUGH tax?  Most clients want to lower their tax bill and be as efficient with their dollars as possible. 

Questions to Consider

Here are some questions we ask clients that could ultimately help save money at tax time:

• Are you currently maximizing your company retirement account (401k, 403b, Simple IRA, SEP-IRA, etc.)?

  • These plans allow for the largest contributions and are deductible against income

    • In our eyes, this is often the most favorable way to reduce taxes because it also goes towards funding your retirement goals! 

    • How are you making charitable donations?  Are you writing checks or gifting appreciated securities?

      • Gifting appreciated securities to charity allows you to avoid paying capital gains but still receive a charitable deduction – a pretty good deal if you ask me!

        • Donor Advised Funds are a great way to facilitate this transfer and are becoming increasingly popular lately because of the ease of use and flexibility they provide for those who are charitably inclined – take a look at Matt Trujillo’s recent blog on this great tool.

        • Should I be contributing to an IRA?  If so, should I put money in a Traditional or Roth?

          • These are fantastic tools to help fund medical and dependent care costs in a tax-efficient manner

            • HSAs can only be used, however, if you are covered under a high-deductible health plan and FSAs are “use it or lose it” plans, meaning money contributed into the account is lost if it’s not used throughout the year – take a look at the blog I wrote earlier this year that goes into greater detail on the advantages and disadvantages of HSAs and FSAs

This is a busy time of year for everyone.  Between holiday shopping, traveling, spending time with family, and completing year-end tasks at work, taxes can get lost in the shuffle.  We encourage you to check out the link we’ve provided that will hopefully give you some guidance with your personal tax situation.  Although we are not CPAs, tax planning is something we feel is extremely important.  We would love to hear from you if you have any questions or ideas you’d like to discuss with us!

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

Please note, changes in tax laws or regulations may occur at any time and could substantially impact your situation. While we are familiar with the tax provisions of the issues presented herein, as Raymond James financial advisors, we are not qualified to render advice on tax or legal matters. You should discuss any tax or legal matters with the appropriate professional. C14-037860