Year End Planning Opportunities – How to Prepare for 2016

Contributed by: Nick Defenthaler, CFP®

Last week, Melissa Joy and I had the pleasure of hosting a webinar to discuss Year-End Planning Opportunities for clients to consider. In the webinar we outlined certain action items that you may want to keep on your radar going into 2016. As our largest attended webinar for the year, we were eager to review some important, timely planning items to consider before 2015 comes to a close and also touch on some of the more common items we see clients miss throughout the year that we’d like to see avoided if possible. 

Below you will find the links to handouts that we referenced throughout the presentation that contain some key dates and financial planning ideas to consider. 

• 2015 Year-End Planning Opportunities: These important tax and financial planning moves can help prepare you for the upcoming tax season and better align your portfolio with your short- and long-term goals.

• Year-End Tax Planning Worksheet: This worksheet is designed to make organizing your year-end tax planning a little easier. While not intended to be comprehensive, it can help you get ready to discuss your tax situation with your financial advisor and tax professional.

As we stressed several times throughout the webinar – we encourage you to keep us in the loop when things change in your life during the year.  Job changes, large bonuses, early retirement, job loss, moving, starting Social Security, etc. are all examples of events we want you to reach out to us about for guidance and to see if there are opportunities we can help you take advantage of.  Sometimes it will be as simple as us letting you know you’re doing everything you should be doing but other times, there might be items we can help you uncover that otherwise would have been missed.  We are your financial teammate and are here to help you whenever you need us!   

Below is a link to the recording of the webinar that we’d encourage you to share with any friends or family members who you feel could benefit from the information as well.

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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This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. 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. This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. 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.

Use Your FSA Dollars Before you Lose Them!

Contributed by: Nick Defenthaler, CFP®

With less than a month left in 2015, now is a good time to evaluate your Flex Savings Account (FSA) balance to see if there are any funds remaining from the year.  An FSA is an account that you, as an employee, contribute to on a pre-tax basis – like a traditional 401k. You can then use the contributions for medical or dependent care expenses, allowing you and your family to pay for these inevitable expenses in a tax-efficient manner.  The catch however, is that funds contributed to the FSA typically must be used by the end of the year or the money is forfeited.

Flex Plans Get More Flexible

As mentioned, FSAs are "use it or lose it plans" but in recent years, the rules have become slightly more flexible - no pun intended.  Employers now have the option to either:

1. Provide a “grace period” of up to 2 ½ extra months to use the remaining funds in the FSA or…

2. Allow you to carry over up to $500 to use in the following year

It’s important to note that your employer is NOT required to offer these options, but if they do, they are only permitted to choose one of the above options – not both.  This recent change to how the unused balances for FSAs are treated helps you and makes FSAs far more attractive than years past.    

How to Make the Most of Your Flex Spending Account

The most you can contribute to an FSA for 2016 is the same as 2015 - $2,550 or $5,000 as a family.  A medical FSA can be used for qualified medical expenses such as prescription drugs, co-pays, teeth cleanings, eye exams, etc.  Typically items such as over-the-counter drugs and elective medical procedures are not eligible to be paid from your FSA.  The dependent care FSAs are great for working parents who pay for childcare, but just like the health care FSAs, you should check out IRS.gov for a list of “approved” expenses.

This is a crazy busy time of year for all of us, but if you have an FSA through work, make it a priority over the next few weeks to check the balance and see what options you have for the unused balance (if there is one).  If you only have until 12/31/15 to use the money, now might be a good time to schedule that teeth cleaning or annual physical you’ve been putting off all year.  Chances are you’ve already gone through open enrollment at work but if you’ve yet to choose to participate in the FSA through your employer, take a look at potentially utilizing it.  When used properly, an FSA is a great tool to help pay for the expenses most of us cringe at in – all while lowering your year-end tax bill. 

If you have questions on how much you think you should contribute or if an FSA makes sense for you and your family – give us a call, we’d be happy to give you some guidance!

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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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 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. You should discuss tax matters with the appropriate professional.

The Ladder to Adulthood—What Millennials Need to Know

Contributed by: Clare Lilek

I graduated from college in 2014, and this year started the first salaried job of my professional career. These are big steps in what I call my “ladder to adulthood.” What is this ladder, you may ask? Well twenty-somethings (and thirty-somethings too) each have their own ladder to adulthood: the stepping blocks we accomplish little by little to become full adults. These steps can include becoming participating civil citizens, being financially independent, and having a sense of life and economic stability. Yeah, it’s a pretty important ladder.

When you turn eighteen, your ladder begins as you choose your next steps after graduating high school. Depending on how knowledgeable you are about the adult decisions that lie ahead and how ready you are to make said decisions, you could have a step ladder, or something reminiscent of a skyscraper.

Personally, I didn’t realize exactly how long my own ladder to adulthood was until I arrived at The Center. This is my first time working in the financial industry and my previous exposure to these topics were hushed whispers of the mysterious 401ks and the disappearance of pensions—what did that even mean?! After working here for a couple of months, not only did I figure out what a 401k is, but in general, my knowledge about financial topics has grown exponentially. But that got me thinking, if I didn’t work at The Center, when would I have learned all this? Would it have been too late? Well, not to worry, I have compiled a very basic list of what millennials entering the workforce fulltime should be (but aren’t necessarily) doing:

1. Think about your future. 401ks and IRAs are fancy terms for savings – savings that are dedicated to your retirement. The earlier you open one of these accounts, the more money you can accumulate and the more stable you’ll be when your retirement comes.

2. Understand the importance of the market. Investments are the way of the world and just saving money in a bank account is not going to accrue as much interest as investing does. 401ks and IRAs take your savings and invests it in the market which, in theory, will allow you to have more money than just by keeping your money in the bank.

3. Know the lingo. Stocks vs bonds, and the pros and cons of each. Understand diversified portfolios and what that means for stability.

4. Save, save, and save some more! Have a budget that includes savings, and stick to it. Don’t live beyond your means, an important life lesson! And when budgeting, save a portion of each monthly salary.

5. Have a plan. If investments and 401ks are mysteries to you, there is no shame in having a Certified Financial Planner™ help create a plan with you—actually, it’s a very “adult” thing to do. They can set up accounts, plan for your future, and make sure you’re in the know.

Hey Millennial, if you were to win the lottery today, would your first thought be, “I should probably invest that money and save for my future?” What about your second or third thought? I’m going to take a guess that, no, that’s probably not in your initial thought process. But shouldn’t it be? That’s my point. We’re not talking about these topics and no one is talking to us about them, yet they are crucial in securing our future.

We learn as preschoolers that the early bird gets the worm, and in this case, the early bird gets a more comfortable retirement and financial life. Just by learning about financial planning, investments and the like, you are stepping up that ladder to adulthood and ensuring that when you step off that ladder, you’re stepping onto a stable platform.

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

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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. Any opinions are those of Clare Lilek and not necessarily those of Raymond James. 401(k) plans are long-term retirement savings vehicles. Withdrawal of pre-tax contributions and/or earnings will be subject to ordinary income tax and, if taken prior to age 59 1/2, may be subject to a 10% federal tax penalty. Prior to making an investment decision, please consult with your financial advisor about your individual situation.

Qualifying for an Affordable Care Act Insurance Subsidy

Contributed by: Matt Trujillo, CFP®

If you retired prior to age 65 (Medicare eligibility age), and didn’t get ongoing insurance from your former employer, then odds are you purchased health insurance through a health care exchange.  Depending on your modified adjusted gross income (MAGI) you may have been entitled to a subsidy on your monthly insurance premiums. 

The subsidy depends on your household size (how many people you claim on your tax return), as well as your modified adjusted gross income.  If you are unfamiliar with the concept of MAGI, it is your AGI (the number at the very bottom of your 1040) plus some stuff you have to add back such as non-taxable social security benefits, tax exempt interest, and excluded foreign income. These items are important to note because just simply looking at your AGI might lead you to believe you qualify for a subsidy – when in fact you don’t.

How To Qualify for a Subsidy

The subsidy amount is determined by several factors, chief amongst them is your MAGI relative to the declared federal poverty level for a given year. For 2015 the federal poverty level for a household of 2 is $15,390 and for a family of 4 it is $24,250.  Determining where you are on the scale (you can be anywhere from 100%- 400%) will determine your eligible subsidy.

Common Health Care Subsidy Questions

Q: What if you estimate that your income will be 400% of the federal poverty level, making you eligible for a subsidy, and in reality it ends up being more than that?

A: You will have to pay back the entire subsidy you received throughout the year. My advice in this case is if you think it’s going to be really close, it might be better to wait until the year is over and file form 8962 with your taxes to see if you were eligible for any subsidy that you didn’t receive. If, in fact, you were eligible, you will get any owed money back in your tax refund come tax time.

Q: What if I overestimate my income and I received a smaller subsidy on insurance premiums than I should have received throughout the year?

A: Again, this is where form 8962 comes in handy. Fill this out with your taxes and any money you should have received will be given back to you in your tax refund can be applied against tax owed or refunded to you if there is no tax liability to offset).

As always, if you have questions about your personal situation, we’re here to help!

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 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. Please note, changes in tax laws may occur at any time and could have a substantial impact upon each person's situation. 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.

An Innovative Approach to your Emergency Fund

Contributed by: Timothy Wyman, CFP®, JD

Innovation isn’t a word you generally hear from financial planners. I have to admit my DNA is more about consistency and research-based practices.  However, at times new thinking and methods might just be what the (financial) doctor calls for.

Traditional Emergency Fund Approach

Take the old Emergency Fund – Financial Planning 101.  You’ve heard the advice; place 6-12 months of living expenses in a safe and liquid vehicle (think savings account or Certificate of Deposit) so funds are available should there be an emergency such as a leaky roof, need for a new hot water heater, kids medical bills, etc.  My sense is that this is a good strategy especially for younger folks starting their careers and families.  This strategy provides discipline and limits the chances of abusing credit, which hampers many young families today.

Innovative Emergency Fund Strategy

However, for more seasoned folks like me, perhaps a change in strategy is in order.  Partly due to very low interest rates (that may even become negative soon) as well as hopefully more financial discipline from years making mistakes, you might consider using a ROTH IRA, Home Equity Line of Credit (“HELOC”), or Securities Based Line of Credit (“SBL”) for your emergency fund needs. Here’s a closer look at all three.

Roth IRA in an Emergency

While the ROTH is intended for retirement savings, they do offer some flexibility in that contributions (but not earnings) may be withdrawn penalty and income tax free at any time.  Hopefully the money is not needed and your so called emergency money can grow tax free.  The downside is that not everyone qualifies due to income limitations - that is, of course, unless your financial advisor is not innovative enough to know about the “Back Door Roth”…we do! If you haven’t yet, read this blog on Back Door Roth IRA Conversions.

Home Equity Line of Credit (“HELOC”) in an Emergency

A HELOC can provide flexibility or access to immediate cash if needed, thus perhaps eliminating or reducing the amount you need to set aside in an emergency fund earning close to zero.  If you are required to use the line of credit, make plans to pay it down or off with other assets over time.

Securities Based Line of Credit (“SBL”) in an Emergency

A SBL is a line of credit secured by a taxable investment account.  In many respects it is very much like a HELOC except that it is secured by an investment account rather than your home equity.  Like a HELOC, the rates are very competitive currently; however they are normally variable rate products.

In the great words of Forrest Gump “IT happens”. The key is to be prepared prior to a crisis by having an emergency fund established, whether it be a traditional savings account, Roth IRA, HELOC, SBL or combination of all three. We’re always here to help you be ready to deal with IT.  

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

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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, it is not a statement of all available data necessary for making an investment or financial decision, and it does not constitute a recommendation. Any opinions are those of Center of Financial Planning and are not necessarily those of Raymond James.

Live Your Plan: Estelle Wade

Contributed by: Center for Financial Planning, Inc.

We think it’s as important to Live YOUR Plan™ as it is to make your plan. Every day we work with clients to build visions of retirement and we love seeing those visions become reality. About 30 years ago, Estelle Wade helped start Center for Financial Planning. From those early days until her retirement in 2002, she helped build hundreds of retirement plans. And as she worked for her clients, Estelle also took time to put her own plan in place. Today, she’s living it out with her husband Gene in Arizona. We caught up with her to find out how she had put her projections into practice.

Tax Free Growth: A Webinar Targeting Fiat Chrysler Retirement Plans

Contributed by: Center for Financial Planning, Inc.

A couple of weeks ago, Nick Defenthaler, CFP®, hosted a webinar targeting Fiat Chrysler employees and how they could save thousands of dollars by contributing to the after-tax portion of their 401k plan. Although not all 401k retirement plans have these same capabilities, knowing about the possible tax deferred options that could be available for your retirement plan can be helpful for future saving.

In the webinar below, Nick explains the difference between traditional 401ks and Roth 401ks, and also includes insight into other retirement saving vehicles like IRAs. He explains what retirement plan could be best for you and your future, which can depend on your current tax bracket and your predicted future bracket. The webinar is filled with basic information about retirement plans and then delves into the specific plan as it relates to Fiat Chrysler employees. Take 30 minutes to review the information and if you have any questions, feel free to contact us.

For further information, Nick has already shared advice for thinking about Back Door Roth IRA Conversion and what Ford Employees should do regarding this same topic.

Passing on Wealth & Money Values to the Next Generation

Contributed by: Matthew E. Chope, CFP®

I work with a lot of moms and dads who want their kids to know what they think is important. Since I’m their financial planner, these values are often tied to money. In an ideal situation, parents want to give their children and grandchildren the freedom to choose for themselves when wealth is passed on to them. But oftentimes, I’ve seen an inheritance turn into guilt, bring out greed, or even sprout into remorse…when all the parents wanted was for their kids to be okay.

Discussing Inheritance + Values

I recently spoke at The Private Wealth Midwest Forum in Chicago to other professional advisors regarding multigenerational family wealth issues. I shared how to help families manage wealth across the generations, covering the successes and challenges I’ve witnessed with families. A major part of the equation is communicating across the generations. The conversation is different when you’re talking to a tween than a college grad. By taking maturity level into consideration, you can tailor the conversation to focus on what brings meaning to money for them. I generally try to have parents or grandparents lead this discussion and share their values, how their wealth was conceived, and their ongoing intentions. Involving children in the conversation and encouraging them to share fosters deeper understanding.

Are My Kids too Young for this Conversation?

I had a meeting with an 11 year old and his father recently – he’s my youngest new client! We started chatting about what money means and providing an early education about stocks vs. bonds, working for the family business, and his wages vs. the company’s profits.  I was amazed at how much the 11 year old could understand. He was quicker with all of the math in his head than I was! Parents often assume their children are too young for serious conversations about wealth and inheritance. I feel the time is right as soon as the parents are ready and I always encourage my clients not to wait until it’s too late!

Knowing How to Give and How to Receive

Once your family has the conversation and develops an understanding of what is sacred, there are other ways to link money with meaning. I hear from clients that, “Our tax guy said gifting money is a smart thing to do.” But simply dropping checks into a bank account can be like a meteor strike if your family hasn’t invested time and effort in the money and in a meaningful conversation. I encourage parents and grandparents to accompany monetary gifts with a note about the value and meaning of the gift. Your goal is likely to help your children on their journey, but not provide for entropy … so tell them that. The act of transferring wealth may not change, but the values associated with the inheritance can provide valuable perspective for both the givers and the receivers. Is it time for you to begin the family conversation? I’m here to help.

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. In 2012 and 2013, Matt was named to the Five Star Wealth Managers list in Detroit Hour magazine.

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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.

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 Chope and not necessarily those of Raymond James.

Don’t Let the Gender Pay Gap Derail Your Retirement

Contributed by: Laurie Renchik, CFP®, MBA

Women hold a tremendous amount of financial power and are an active part of the workforce and economy as a whole. At a time when women are assuming added responsibility for their families and finances, the gender pay gap that is a reality for many has the potential to derail security in retirement.  

Recently, Ellevate Network surveyed thousands of professional women and found that 26% of respondents worry that they are not making enough money today and 30% worry that they are not planning well enough for retirement.

If you have these concerns, here are some steps you can take: 

1. Do your homework about salary ranges for your given position and your growth prospects for the industry. Then be prepared to negotiate.

2. Leverage benefits provided by your employer.  Medical, dental, life insurance and disability are just some of the benefits that may be part of your compensation package.  Pay attention to when you become eligible.

3. Prioritize your own retirement and begin saving as soon as economically feasible. On average women live longer than men and accumulate less in retirement accounts. Don’t forget to increase your contribution every time you receive a raise.

4. Understand how your lifetime earnings directly impact your Social Security benefit. Benefits are calculated on the highest 35 years of earnings.  If there are fewer than 35 years, then zeros go into the calculation.

Shining some much needed light on the gender wage gap can make a difference for all women. In the meantime, women can adopt good financial habits early in life, set their own goals, and garner the support they need to stick to those habits over the long run. We can help you pull together the details you need to put your plan in place.

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.

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. Investing involves risk and investors may incur a profit or a loss.

Part 9 – A Year of Lessons on Money Matters for your Children and Grandchildren

Contributed by: Matthew E. Chope, CFP®

When it comes to teaching the next generation about money, it’s as important to talk about what NOT to do as it is to teach the right things to do. After working with clients for 25 years I’ve built a list of Things to avoid at all costs!!!  The 8 steps below are never a guarantee, but from experience, they are good financial lessons:

8 Things to Avoid:

1. Avoid expensive bad debt. Know what something costs and don’t pay for things with expensive interest.  Reasonable interest rates in 2015 are 2-4% for a car loan (some are even less!), 3-4% for a mortgage, and 3-6% for school loans (depending on your situation). Credit cards should be used only as a last resort and make sure the rates are less than 10%.

2. Don’t take on more debt than necessary. In the case of college loans, you’re likely to be offered more money on loan than you truly need. While it may be tempting to take out money for living expenses and books, finding ways to pay for as much as possible immediately can save you years of repaying debt.

3. Don’t be lazy or cheap. Do it now! Make a decision and do it – stop putting things off and being lazy. Also know what the value of things are and pay for them when needed and be reasonable.  Share and try to do more for others than yourself at all stages of your life it comes back to you.

4. Avoid negative modes of thought. Sentiments like envy, resentment, revenge and self-pity are not productive.  These modes of thought will sap the life out of you and derail you from what you should be focused on.  If you worry about what someone else has or getting back at someone, you lost already and you’re wasting precious resources that could be better used on yourself and personal improvement.  I strongly recommend asking your mentor for help with breaking this cycle.

5. Don’t be rude. Though it seems pretty self-explanatory, I once had a business meeting with a colleague at a restaurant and he was very short and rude to the waiter because of the slightest error.  After that, I never wanted to do business with him again.  Treat people the way you want to be treated.

6. Avoid investing in anything that you don't understand.  Buy what you know.  Invest in products and services that you use and feel work for you in your life because you will feel more confident with your investment.  Or break down an investment in a mutual fund to understand what it’s made up of so that when it goes south, you have staying power during the market downturns that will eventually come.

7. Don’t cosign for a loan. Should be self-explanatory, but you’re putting your credit on the line if the person you are cosigning for falls short or has any type of trouble.

8. Avoid taking a loan from your 401k at all costs. This is silly to do under most circumstances.  You actually pay extra tax in this process and rob the forward momentum of the retirement goal to fund another short term want.  The equation does not work out well for most people when it comes to wealth building.

While some of these “what not to do” suggestions seem obvious, I’ve seen them played out time and again.  Hopefully, the list will provide you with some insight on what to stay away from … or at least know when you are walking on thin ice! If you have questions, we are always here to help find answers.

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. In 2012 and 2013, Matt was named to the Five Star Wealth Managers list in Detroit Hour magazine.

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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.

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 Matthew Chope and not necessarily those of Raymond James. Investing involves risk and investors may incur a profit or a loss. You should discuss any tax matters with the appropriate professional.