2018 Increases Retirement Plan Contribution Limits and Other Adjustments

Contributed by: Robert Ingram

Several weeks ago, the IRS released updated figures for retirement account contribution and income limits for 2018.  Like the recent Social Security cost of living adjustment, the adjustments are minor but certainly worth noting. 

Employer Retirement Plans (401k, 403b, 457, and Thrift Savings Plans)

• $18,500 annual contribution limit (up from $18,000 compared to 2017 – first increase in 3 years!)

• $6,000 “catch-up” contribution if over the age of 50 remains the same as 2017

• Total amount that can be contributed to defined contribution plan including all contribution types (employee deferrals, employer matching and profit sharing) increases to $55,000 (up from $54,000 compared to 2017) or $61,000 if over the age of 50 ($6,000 catch-up)

  • Consider contributing after-tax funds if available and cash flow allows for it.

In addition to the contribution limits increasing for employer-sponsored retirement plans, the IRS adjustments provide some other increases that can help savers in 2018.  A couple of highlights include:

Traditional IRA deductibility income limits:

Contributions to a Traditional IRA may or may not be tax deductible depending on your tax filing status, whether you are covered by a retirement plan through your employer, and your modified adjusted gross income (MAGI).  The amount of your Traditional IRA contribution  that is deductible is reduced (“phased out”) as your MAGI approaches the upper limits of the phase out range.  For example,

• Single: Covered under a plan

  • Phase out begins at $63,000 up to $73,000 compared to 2017 (phase out: $62,000 to $72,000)

• Married filing jointly: Spouse contributing to the IRA is covered under plan

  • Phase out begins at $101,000 to $121,000 compared to 2017 (phase out: $99,000 to $119,000)

• Spouse contributing is not covered by a plan but other spouse is covered under plan

  • Phase out begins at $189,000 to $199,000 compared to 2017 (phase out:  $186,000 to $196,000)

Roth IRA contribution income limits:

Whether or not you can make the maximum contribution to a Roth IRA,  ($5,500 in 2018 plus a $1,000 “catch-up” for individuals age 50 and above) depends on your tax filing status and your MAGI.  The contribution you are allowed to make is reduced ("phased out") as your MAGI approaches the upper limits of the phase-out range.  In 2018 for example,

• Single

  • Phase out begins at $120,000 to $135,000 compared to 2017 (phase out:  $118,000 to $133,000)

• Married filing jointly

  • Phase out begins at $189,000 to $199,000 compared to 2017 (phase out: $186,000 to $196,000)

If your income is over this limit and you cannot make a regular annual contribution, you might consider a popular planning tool known as the “back-door” Roth conversion.

As we enter 2018, these updated figures will be on the forefront when updating your financial game plan.  However, as always, if you have any questions surrounding these changes, don’t hesitate to reach out to our team!

Robert Ingram is a Financial Planner at Center for Financial Planning, Inc.®

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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 reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Bob Ingram, CFP® 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. Investing involves risk and you may incur a profit or loss regardless of strategy selected. The above hypothetical examples are for illustration purposes only. 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.

Military Veteran’s – Are you Entitled to Benefits?

Contributed by: Sandra Adams, CFP®

As we honor our servicemen and women, it is a good time to be mindful of valuable financial benefits that military veterans may be eligible for, but not aware of – namely Service Related Disability Compensation and Veteran’s Pensions (and Aid and Attendance Benefits for Long Term Care needs).

Disability Compensation:

Disability Compensation is a tax free financial benefit paid to Veterans with disabilities that are the result of a disease or injury incurred during active military service.  Compensation may also be paid for post-service disabilities that are considered related or secondary to disabilities occurring in service and for disabilities presumed to be related to military service.  Compensation is tied to the degree of disability and is designed to compensate for considerable loss of working time.  There is also a tax free Dependency and Indemnity Compensation (DIC) benefit payable to a surviving spouse, child or dependent parents of Service members who died while in active duty or training, or survivors of Veterans who died from their service-connected disabilities.

Pension Benefits:

Veteran’s Pension benefits may be available for Veterans or dependent family members who need to pay for health care expense and certain other living expenses.  The pension benefit is a needs based program and is based on income and asset requirements set by Congress. 

General Eligibility Requirements:

• Must have served at least 90 days active duty service, at least one day during a wartime period, AND

• Must be 65 or older, OR

• Must be totally and permanently disabled, OR

• A patient in a nursing home receiving skilled nursing care, OR

• Receiving Social Security Disability Insurance, OR

• Receiving Supplementary Security Income

Veterans or surviving spouses who are eligible for VA pensions and are housebound or require the aid and attendance of another persona may be eligible for an additional monetary payment.  Applying may require the counsel of a VA counselor or an Elder Law attorney knowledgeable about Veteran’s Benefits.

In addition to these two major financial benefits, the VA provides assistance for Veteran’s with housing, education, insurance and other areas of concern and interest for Veteran’s.  If you are a military Veteran and are not aware of the benefits you might be eligible for, contact your local Veteran’s Service Agency today.  And remember to mention to your financial planner that you are a military Veteran – the benefits you might be eligible for could be an important piece in your overall planning puzzle!

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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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 Sandra Adams, CFP® and not necessarily those of RJFS or Raymond James. You should discuss any tax or legal matters with the appropriate professional.

High Deductible Health Plans and HSAs

Contributed by: Matthew E. Chope, CFP®

I am a big fan of High Deductible Health Care Plans. As individual and group premiums rise, employers are pushing their employees to take more responsibility for their health and healthcare costs, and offering High Deductible plans is one way they are doing this.  You can have a High Deductible plan as an individual or in a group plan.

There are some basics about these health care plans that you need to understand.  Basically, high deductible plans are not allowed to offer any co-pay benefits – like paying $10 for a generic prescription or $35 for a doctor visit. Thus, they usually work well for healthy people, although more and more, they work even if you know you’re going to hit your out of pocket maximum for the year because of their lower premiums. 

If you have a High Deductible Health Care Plan, you can take advantage of a HSA (Health Savings Acccount) which is typically opened at a bank or credit union. If you have an HSA plan, you are allowed to make pre-tax contributions to that account.  The maximum contribution will be $6900 in 2018 for a family and $3450 for an individual. If you are 55 or older, you can add another $1000 to those figures. If you get your insurance through your employer, you may find that your employer offers the HSA account for you and even makes a contribution to it during the year. In which case, you would count this money as part of your contribution limit.

You might be thinking, what’s so great about this if my insurance covers almost nothing unless I hit my deductible and/or out of pocket maximum? (They are often, but not always, the same amount.)

The High Deductible Health Care Plan is a wonderful planning tool for several reasons

1. First, they operate the way insurance is supposed to operate: a smaller cost for an unlikely (but potentially catastrophic) event... think fire insurance on your home.  Going to the doctor or filling a prescription are not unlikely events at all, so really, when a plan offers copays for things like doctor appointments and prescription medication, that’s not really insurance, that is a discount plan. Consider it as though you are paying for the discount in the premium.

2. Second, HSAs offer a great tax break: the money is contributed with pre-tax dollars, the account grows tax-free… and best of all… none of it is taxed coming out.  (as long as you use them for qualified medical expenses.) Yes, there are rules about what is a qualified medical expense but in a nutshell most legitimate expenses for healthcare are okay.  You can’t use them for: the actual premium cost of the insurance, supplements, massage, or elective surgery (this is usually the case but there are exceptions). The HSA is the only vehicle where the money isn’t taxed going in or coming out, if you follow the fairly simple rules.*

3. Third, HSA dollars can be used on things that insurance doesn’t typically cover, such as alternative care with a chiropractor or acupuncturist for example.  You can also use HSA money to pay for things like the dentist or eye doctor. (See IRS Pub. 502 for a list of qualified medical expenses.)

Some people also use the HSA as another savings vehicle.  They max out their contribution each year, but instead of spending the money on medical costs, they pay for their costs with regular old post-tax dollars.  They still get the tax deduction, because the deduction is based on the contribution, not on the spending.  Then in retirement they’ve got an account they can use for health care costs.

Taking the Strategy One More Step

If you have a large expense pre-retirement and you pay for it with post-tax dollars (i.e you just write a check), you can reimburse yourself for the cost years later.  That means you can make a tax free withdrawal in retirement for a pre-retirement healthcare expense.  This could make sense for a large ticket item, like a hospital bill.   Having a tax-free account such as an HSA could really help you be strategic with retirement income. (Consult with your CPA, and save those receipts for this strategy!)

The High Deductible Health Care plan/HSA Strategy isn’t for everyone, but to figure out if it makes sense for you, it’s best to speak with someone who can analyze your individual situation and advise you.  Brokers’ services are free to you, as they are compensated by the insurance carrier you choose.  You can also contact us for help with deciding if this strategy makes sense for you.

* May be subject to State or local taxes.

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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This information does not purport to be a complete description of High Deductible Insurance Policies or Health Savings Accounts, it has been obtained from sources deemed reliable but its accuracy and completeness cannot be guaranteed. Opinions expressed are those of Matthew Chope and are not necessarily those of Raymond James. Investing involves risk, investors may incur a profit or loss regardless of the strategy or strategies employed. 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.

Required Minimum Distribution Update

Contributed by: Timothy Wyman, CFP®, JD

As tough as it is to admit, sometimes after practicing for 26 years I take things for granted. I should know better!  One such instance was working with one of the firm’s long term clients facing their first Required Minimum Distribution (“RMD”) from her IRA. As our client shared, “Since neither of us have experienced this life experience before, we know nothing about it.”  The good news is that The Center has been helping clients satisfy their RMD requirement and integrating it into their financial planning for years. What I forgot was that what may appear a routine exercise for us as professionals may not be for folks experiencing a RMD for the first time.

Center partner Laurie Renchik, CFP®, provides a quick outline of the rules in the following blog post: http://www.centerfinplan.com/money-centered/2013/2/7/the-magic-age-of-70-and-your-required-minimum-distributions.html?rq=rmd

While the rules may be considered somewhat straight forward – as usual there are many nuances. More importantly, sometimes the issue is simply how one actually takes the money.

Need the money for living expenses? We can transfer to your bank account or send a check. This can be done monthly, quarterly, or even as a lump sum during the year.

Don’t need the money? We can transfer the after tax amount to a taxable investment account and reinvest for future use. Remember, the tax man wants to get paid (via income tax withholding) before the transfer.

For example, Mary’s RMD amount is $20,000 and she is in the 25% marginal income tax bracket for federal income tax purposes.  We would request a gross distribution of $20,000 and send the IRS $5,000 for income tax withholding and the $15,000 balance could be reinvested in Mary’s taxable investment account.  I should note, the State of Michigan in Mary’s case wants their share and therefore we would withhold another 4.25% in most cases.

Additionally, while not necessarily a RMD rule, those over 70.5 and subject to a RMD may also consider how a Qualified Charitable Distribution (“QCD”) might be beneficial.  My colleague Nick Defenthaler provides a great recap here:

 http://www.centerfinplan.com/money-centered/2017/9/8/qualified-charitable-distributions-giving-money-while-saving-it-1?rq=rmd

The ease of giving and potential income tax benefits makes this an attractive option for many.    While not a substitute for professional assistance, please find a summary of the major provisions for your consideration:

Donor Benefits of the QCD include:

• Convenience: An easy and simple way to support your favorite cause

• Lowers Taxable Income:  The donor does not have to include the qualified charitable distribution as taxable income – whether the donor uses the standard deduction or itemizes deductions.

• Ability to make larger deductible gifts:  A donor is not restricted to 50% of adjusted gross income by using an IRA for charitable gifts.  Therefore, a donor may make larger charitable gifts.

• Income tax savings:  The donor may save substantial income taxes not otherwise available due to deduction floors and phase-outs at higher income levels.   

You have worked to save money for the future and tax deferral via IRA’s for most has been an important component. At age 70.5 IRS regulations dictate that a minimum amount must be withdrawn whether you actually need the money for living expenses. The Center is here to assist you in your RMD planning and to ensure that they are integrated into your overall retirement planning.

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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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.

A New Season: Empty-Nesters

Contributed by: Laurie Renchik, CFP®, MBA

This year the fall season took a different turn than the past eighteen and it wasn’t associated with the weather.  My youngest child was college bound for his freshman year.  How did that happen?  It was a mad rush from high school graduation festivities in June to college move in day in August.  The reality of an empty nest began to set in as my husband and I drove home leaving our son to settle into his new digs.  Our conversation took many expected turns reminiscing about the past and looking forward to the future.  

This new chapter we surmised was as an opportunity to put some additional focus on our life goals including a “catch-up” sprint to shore up retirement savings. More questions than answers surfaced.  Should we downsize, take a big trip, save more, spend more, double up on mortgage payments, or put a finer point on our expectations for the future?  Perhaps you can relate to this milestone in life. 

The following Empty Nest Checklist can help to organize thoughts and prioritize action steps:

1. Revisit the big picture.  Make time to talk about lifestyle changes you’re thinking about, along with their financial impact. Think of it like a test drive for your retirement years. While you are at it, give your financial plan a fresh look. Celebrate successes, clarify goals and identify potential gaps.

2. Consider your finances.  Updating your monthly budget is a good first step.  Putting money you were using to support children toward larger financial goals like paying down your mortgage and boosting retirement savings may be an option with surprising benefits.

3. Review investments.  The status quo may not meet your future needs.  Your financial advisor can help with a review of retirement savings accounts.  Learning how your savings can generate income in retirement helps financial decision making during this new chapter. 

4. Update your goals and need for insurance.  The bottom line is to make sure that existing insurance policies still make sense for your situation.  If your mortgage is paid off and dependents are now independent you may want to reassess your coverage.

Goals change at every stage of life, so regularly reviewing your plans is an important step. Revisiting the basics can build confidence as you plan for tomorrow. Reconciling your next steps as empty nesters is essential to enjoying all that is to come. Don’t forget to celebrate each milestone you’ve achieved along the way and put in place a plan for what comes next.

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 is a member of the Leadership Oakland Alumni Association and is a frequent contributor to Money Centered.

Ballin' on a Budget

Contributed by: Josh Bitel

When I was fresh out of college, one of the most important things for me to learn was how to budget properly. Considering I was taking on my first job with level, predictable income, I knew that it was critical for me to understand where my money goes each month. If I didn’t identify opportunities for savings, I knew I would blow through my money quickly, but I wasn’t sure where to start!

Identifying Financial Goals

Before I could create a budget, I had to identify some goals in order to give my budget a sense of direction. My goals were more short term in nature (pay down student loans, save for vacation, etc.), but long term goals are just as important. If you aim to retire someday, or a child’s education expenses are a concern, budgeting with these goals in mind is certainly a good idea. Once you have a clear picture of what you want to achieve with your budget, it can become much easier to accomplish these goals.

Understanding Monthly Income and Expenses

One of the more difficult, but most important, components of a budget is identifying monthly income and expenses. There is software available that you can leverage, or you can use the old school method and take pen to paper. Regardless of how you come to a conclusion, it is imperative to cover all the bases.

When considering income (outside of the obvious salary or wages), be sure to include any dividends or interest received. Alimony or child support expenses may also come into play depending on your situation. Expenses may be divided into two categories: fixed and discretionary. Fixed expenses are generally easier to document --  these will be your recurring bills or debt payments (Food and transportation can also be captured here). Discretionary expenses are generally more difficult to record (Entertainment expenses, or hobbies and miscellaneous shopping trips are common line items here). It’s also important to keep in mind any out of pattern expenses, like seasonal or holiday gifts, or car and home maintenance. Remember to always keep your goals in mind when crafting your budget!

Once you’ve gotten grasp on your monthly income and expenses, compare the two totals. If you are spending less than you earn, you’re on the right track and can explore ways to use the extra income (save!). Conversely, if you find that you are earning less than you spend, use your budget to identify ways to cut back your discretionary spending. With a little bit of discipline you can start finding capacity to save in no time!

Monitor your Budget & Stay on Track.

Be sure you keep an eye on your budget and make changes when necessary. This doesn’t mean you have to track every nickel you spend; you can be flexible and still be comfortable! It is important to stay disciplined with your budget however, and be aware that unexpected expenses may pop up. With proper cash management, these unexpected events can feel less crippling. To help stay on track, you may find a budgeting software that you like to use, do your research and find one that is suitable for you. A vital takeaway, and something that can go a long way to help increase savings, is being able to identify a need vs. a want. If you can limit your “want” spending, you may be surprised how quickly you can save!

Josh Bitel is a Client Service Associate at Center for Financial Planning, Inc.®

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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 Josh Bitel and not necessarily those of Raymond James.

Finding the Right Professional Partner: A Personal Story

Contributed by: Sandra Adams, CFP®, CeFT™

I suffer from migraine headaches. Soon after I graduated from college, I began to get these debilitating headaches more and more often (up to 3 or 4 times a week), sometimes lasting entire days at a time.  I have spent years working with numerous medical doctors, as well as tracking the headaches -- what I eat and drink, how I sleep and various other life habits in an attempt to find a way to stop them from occurring.  The traditional medical doctors I’ve seen have prescribed numerous medications (and subsequently increased dosages of those medications) in an attempt to treat the headaches – but with no results. Until recently, when I took a different approach…

I found a different professional partner to consult with about my headaches – a doctor who consults on the whole body/body systems and does not try to treat just one symptom. 

By working with a doctor who was looking at how my entire body was functioning, I found out that there were some underlying problems that existed with how my body was handling stress and by adjusting a few small things with my diet and sleep, I have all but eliminated by migraine headaches over the last several months.

What, you might ask, does this have to do with financial planning? 

Choosing the right professional partner, no matter what facet of your life, is extremely important.  Just as it made a world of difference for me to find the right medical partner, it is important for clients to find the right financial partner.  A partner who only focuses on investments or just on insurance may not be the right partner for you if you truly need someone to look at your entire financial “body” to make sure everything is working together in perfect harmony.  If you have not yet found the right professional financial partner and are looking for someone to look at your entire financial lives, contact our Center Team – we are here to help!

Sandra Adams, CFP® , CeFT™ 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.

Guide to the 2017 Benefits Open Enrollment

Contributed by: Nick Defenthaler, CFP®

As summer winds down and we quickly approach the holiday season, many employees will soon be updating their benefit options at work during open enrollment (click here to check out our webinar from last year on this topic).  It’s extremely easy to procrastinate and set that employer benefit booklet off to the side and put it off until you receive the e-mail from HR reminding you it’s due in a few days.  You scramble to complete the forms and more than likely, not spend as much time as you should on electing the benefits that will impact you for the next 365 days.  We’ve all been there, but it’s important to carve out a few hours several weeks before your benefit elections are due to ensure you put in enough time to thoroughly review your options.

If offered by your employer, below are some benefits that you should have on your radar:

• 401k Contributions

  • Are you maximizing your account? ($18,000 or $24,000 if you’re over 50 in 2017)

  • Traditional vs. Roth – click here to learn more about which option could make sense for you  

• Health Insurance

  • HMO vs. PPO - Click here to learn more about how these plans differ from a cost and functionality standpoint  

• Flex Spending Accounts (FSA)

  • “Use it or lose it” – click here to learn more 

  • Medical FSA maximum annual contribution 2017 is $2,550

  • Dependent care FSA maximum annual contribution for 2017 is $5,000

• Health Savings Accounts (HSA)

  • Can only be used if covered under a high-deductible health care plan

  • Click here to learn more about the basics of utilizing a HSA 

    • $3,400 maximum annual contribution in 2017 if single ($4,400 if over 50)

    • $6,750 maximum annual contribution in 2017 for a family ($7,750 if over 50)

• Life and Disability Insurance

  • Most employers will offer a standard level of coverage that does not carry a cost to you as the employee (example – 1X earnings)

  • If you’re in your 20s, 30s and 40s, in most cases, the base level of coverage is not sufficient, therefore, it’s important to consult with your advisor on the on appropriate amount of coverage given your own unique situation  

As with anything related to financial planning, every situation is different.  The benefits you choose for you and your family more than likely will not make the most sense for your lunch buddy co-worker.  We encourage all clients to loop us in when reviewing their benefit options during open enrollment – don’t hesitate to pass along any questions you might have to ensure you’re making the proper elections that align with your own personal financial goals.

Nick Defenthaler, CFP® is a CERTIFIED FINANCIAL PLANNER™ at Center for Financial Planning, Inc.® Nick works closely with Center clients and is also the Director of The Center’s Financial Planning Department. He is also a frequent contributor to the firm’s blogs and educational webinars.

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This information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete.

Qualified Charitable Distributions: Giving Money While Saving It

Contributed by: Nick Defenthaler, CFP®

Late last year, the Qualified Charitable Distribution (QCD) from IRAs for those over the age of 70 ½ was permanently extended through the Protecting Americans from Tax Hikes (PATH) Act of 2015. Previously, the QCD was constantly being renewed at the 11th hour in late December, making it extremely difficult for clients and financial planners to properly plan throughout the year. If you’re over the age of 70 ½ and give to charity each year, the QCD could potentially make sense for you. 

QCD Refresher

The Qualified Charitable Distribution only applies if you’re at least 70 ½ years old. It essentially allows you to donate your entire Required Minimum Distribution (RMD) directly to a charity and avoid taxation on the dollars coming from your IRA. Normally, any distribution from an IRA is considered ordinary income from a tax perspective, however, by utilizing the QCD the distribution from the IRA is not considered taxable if the dollars go directly to a charity or 501(c)(3) organization.    

Let’s look at an example:

Sandy, let’s say, recently turned 70 ½ in July 2016 – this is the first year she has to take a Required Minimum Distribution (RMD) from her IRA which happens to be $25,000. Sandy is very charitably inclined and on average, gifts nearly $30,000/year to her church. Being that she does not really need the proceeds from her RMD, but has to take it out of her IRA this year, she can have the $25,000 directly transferred to her church either by check or electronic deposit. She would then avoid paying tax on the distribution. Since Sandy is in the 28% tax bracket, this will save her approximately $7,000 in federal taxes!

Rules to Consider

As with any strategy such as the QCD, there are rules and nuances that are important to keep in mind to ensure proper execution:

• Only distributions from IRAs are permitted for the QCD. Simple and SEP IRAs must be “inactive.”

  • Employer plans such as a 401k, 403b, 457 do not allow for the QCD.

  • The QCD is permitted within a Roth IRA but this would not make sense from a tax perspective being that Roth IRA withdrawals are tax-free by age 70 ½. *

• Must be 70 ½ at the time the QCD is processed.

• The funds from the QCD must go directly to the charity – the funds cannot go to you as the client first and then out to the charity.

• The most you can give to charity through the QCD in a given year is $100,000, even if this figure exceeds the actual amount of your RMD.

The QCD can be a powerful way to achieve one’s philanthropic goals while also being tax-efficient. The amount of money saved from being intentional with how you gift funds to charity can potentially keep more money in your pocket, which ultimately means there’s more to give to the organizations you are passionate about. Later this month, we will be hosting an educational webinar on philanthropic giving – click here to learn more and register, we hope to “see” you there!

Roth IRA owners must be 59½ or older and have held the IRA for five years before tax-free withdrawals are permitted.

Nick Defenthaler, CFP® is a CERTIFIED FINANCIAL PLANNER™ at Center for Financial Planning, Inc.® Nick works closely with Center clients and is also the Director of The Center’s Financial Planning Department. He is also a frequent contributor to the firm’s blogs and educational webinars.

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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. Any opinions are those of Nick Defenthaler and are not necessarily those of Raymond James. 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.

Adjusting the Secret Sauce in your Financial Plan

Contributed by: Laurie Renchik, CFP®, MBA

Investing in your financial future is a journey that doesn’t start or stop at retirement. Creating financial independence to support your future is a work in progress practiced over a lifetime. While it is reasonable to assume that the approach for a 35-year-old may not be appropriate for a 55-year-old, there is a common thread that emerges regardless of age. As priorities shift and circumstances change, financial plans and investment portfolios need periodic adjustments to stay in sync with your life. If your life journey is anything like mine, some plans work out perfectly and others may require course corrections to stay on track. I have found that the secret sauce is not just THE financial plan; but rather the consistent financial planning process along the way.

Let’s consider a 55-year old with a plan to retire in five years at the age of 60. In this transition period, the focus is shifting from saving and accumulating to preparing to withdraw income from retirement accounts; commonly referred to as the distribution phase. Having the confidence to retire without worry of spending down the nest egg too quickly is a common concern for folks in this transition phase. Sustaining the nest egg especially in the face of events that are beyond control—like market corrections, changing economic backdrops, and business cycles—are why financial plans and investment management go hand and hand.

I have found that considering a range of “what-if” scenarios in order to address concerns before retirement is a productive approach to addressing an unknown future that could unfold during your retired years.

1. Market corrections:  In the early years of retirement, a portfolio that goes down in value during a market correction may suffer initially and cause stress for the recent retiree.
   
   ACTION: Don’t panic. When things go in directions we don’t like, the natural inclination is to take action. To avoid a reactive response, start out with a properly diversified portfolio which includes appropriate asset allocation, ready cash on hand to support income needs, as well as a process for monitoring the big picture. Review your plan for confirmation.    
    

2.  Inflation is higher than expected: With inflation, things cost more over time eroding the value of savings especially when considering a 30 or 40-year retirement.
   
   ACTION: We don’t know how much inflation will spike or fall in the future. Model a range of scenarios in your baseline income assumptions to understand the potential impact. Revisit the areas of rising costs in your plan as part of your review process. Your financial plan should be built to withstand uncertainties.
    

3. Lower than anticipated market returns: A plan that is monitored consistently and customized to your long-term retirement goals can include the analysis and financial independence calculations to easily take into consideration lower than expected returns. 

ACTION: Build in a margin of safety in your baseline assumptions as a buffer to absorb the impact of lower than expected market returns. Put yourself in the best position to achieve your goals by prioritizing in advance where you can make incremental changes so that clarity and purpose are fundamental to your decision. 

Life has a wonderful, unpredictable way of introducing lots of sticky details into the mix. Your financial planner can help with the details and changes needed to take care of your nest egg by working with you to adjust the secret sauce as needed along the way.

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 is a member of the Leadership Oakland Alumni Association and is a frequent contributor to Money Centered.

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Asset allocation and diversification do not ensure a profit or guarantee against loss.