All about AMT: What it is and how it Might Apply to you

Contributed by: Matt Trujillo, CFP®

AMT.  It is one of those IRS acronyms that have a very bad reputation. Most people definitely seem to want to avoid it at all costs – but should they? Let’s find out what is really behind AMT—what it is, if it applies to you, and if it is really as bad as people think it is (or if there are some planning opportunities that might not be so bad).

What is AMT?

It’s a parallel tax code that is calculated alongside the “normal” marginal federal tax code to make sure tax payers are paying their “fair share.”

How does it work?

AMT excludes a lot of deductions that are common to a lot of Americans such as the mortgage interest deduction and state/local tax deduction. Essentially, you are given a flat exemption figure and once you exceed that exemption figure each dollar becomes taxable. For joint filers the AMT exemption is $83,800, each dollar after this is taxed at 26%.

Who does it apply to?

It can apply to anyone who files a federal tax return, but we typically find clients between $159,000 & $494,000 of taxable income most often subject to AMT.

What can you do about it?

If you find yourself in AMT you should really sit down and look at current vs. future income projections. If your income is projected to continue to increase, then AMT could actually present a planning opportunity.  If you think about it logically the alternative minimum tax is 26% and many of our clients find themselves in the 33%-39.6% marginal rates at some point in their working careers. So a 26% tax rate, when you expect to pay much higher, could potentially be a good deal.

In order to take advantage of the AMT rate you will actually need to reduce deductions and accelerate income. Having your financial planner coordinate with your CPA is a critical aspect to do this well in order to find a balance in how much to reduce deductions and how much additional income to accelerate.

Here are some ways to accelerate income:

• Receivables: If you're self-employed, bear in mind that your income isn't taxable until you receive it, if you're using the cash method of accounting. Therefore, you should collect accounts receivable in the current year.
• Year-end bonus: If you're employed and are eligible for a year-end bonus, make sure you receive it before the New Year arrives.
• Restricted stock: If your employer compensates you with restricted stock, it usually isn't taxable until there is no possibility that you'll have to forfeit the stock. However, you may file a statement with the IRS within 30 days of receiving the stock, allowing you to treat the stock as vested so that you can include the value of the stock in your income now.
• ROTH Conversions: Moving some money out your traditional IRA into a ROTH IRA can be a great way to accelerate income and convert some money at a 26% tax rate and withdraw it when you are potentially in a higher tax rate down the road.
• IRA or retirement plan distributions: You may be able to increase your income in the current year by taking any planned distributions from your traditional IRA or retirement plan this year instead of next year. (If you aren't yet 59½, however, you may be assessed at a 10% premature distribution tax unless you meet an exception.)
• Installment notes: If you sold property and are receiving installment payments for it, you may cause the remaining installment payments to be included in income during the current year in one of three ways: (1) have the debtor pay off the note this year, (2) use the installment note as collateral for a loan, or (3) sell the note to a third party.
• Dividends: If possible, arrange to receive dividends before the year's end. 
• Lawsuits, insurance claims, etc.: If you're embroiled in a dispute that could result in the receipt of taxable income, you can accelerate the income by settling the dispute before next year. 
• Capital gains: If you have assets that would result in a capital gain if sold, consider selling them this year in order to accelerate income.
• EE bonds: If you have U.S. government Series EE savings bonds (may also be called Patriot bonds) and you've elected to defer taxes until the bonds are redeemed, cash them in this year.

Here are several ways to postpone deductions:

• Bunching deductions in the following year: Try to time your expenses to create deductions in the following year. For instance:
  • Schedule nonemergency visits to your dentist and doctor for the following year
  • Avoid prepaying property taxes and interest that is due the following year
  • Postpone charitable gifts until next year
  • Hold off on paying miscellaneous expenses (e.g., professional dues) until next year
• Minimizing depreciation deductions: Minimize your depreciation deductions by electing a straight-line depreciation method and forgoing the Section 179 expense election.

AMT can be very tricky to understand and navigate effectively. Be sure to work with a team of qualified professionals, including your financial planner, if you plan on delving into this complex area of financial planning. Like always, if you have questions regarding AMT and your options, give us a call!

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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The information contained in this blog does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any 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 Matthew Trujillo and not necessarily those of Raymond James. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Every investor's situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment. Unless certain criteria are met, Roth IRA owners must be 59½ or older and have held the IRA for five years before tax-free withdrawals are permitted. Additionally, each converted amount may be subject to its own five-year holding period. Converting a traditional IRA into a Roth IRA has tax implications. Investors should consult a tax advisor before deciding to do a conversion. Dividends are not guaranteed and must be authorized by the company's board of directors. 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.

Second Quarter Investment Commentary

Contributed by: Angela Palacios, CFP®

Ever heard of the Chinese curse?  “May you live in interesting times.”   We certainly have the interesting part covered this year! 

Voters are showing that around the world they are fed up with the status quo. Donald Trump became the presumptive nominee as the republican candidate for President of the United States while David Cameron, Prime Minister of the United Kingdom, announced he will be stepping down after the UK voted to leave the European Union. 

Unfortunately, “interesting” usually translates to volatility in the markets and this quarter has been no exception. With the S&P 500 up 2.46% for the quarter and 3.84% as of June 30th for the year, the ride has not been as smooth as it may appear on the surface especially during the last trading week of the second quarter.

Brexit

An affirmative vote for the UK to leave the EU, or Brexit, caused a couple of days of uncomfortable downside volatility, but it did not last long. The media has a hay day with these “interesting” events and we find ourselves having to sift through the hype to dig into what an event really has to do with our portfolios. 

Let’s put some perspective around this. The United Kingdom only represents about 4% of the world’s GDP compared to the U.S. contributing 22% according to the World Bank’s Gross Domestic Product figures for 2015. In fact, the separation could take two years, after they invoke an agreement called article 50, to iron out the details and in the end may not even harm the world’s economy.  Article 50 must be invoked by the Prime Minister and likely won’t be done until later this year after David Cameron is replaced. 

The point here is that all is yet unknown and Brexit will certainly continue to cause headlines on occasion over the coming years as well as short term potential volatility. 

Overall, this should not impact long term returns in a significant way for most asset classes outside of the UK, and therefore we aren’t recommending a change to a diversified long-term investment strategy.   Our international holdings remain spread around the world and there are no outsized positions within the UK. These periods of short term volatility may be viewed as buying opportunities for our international portfolio managers.

Interest Rates

The Federal Reserve voted to stay their hand at the June meeting and did not raise interest rates again but left an opening to possibly raise rates at the July meeting. Economic data has come in at its continued slow growth trajectory while inflation has been benign causing the lack of interest rate increases by the Fed. The Fed was also concerned about the Brexit vote occurring one week after their meeting and this may have caused them to hold off as well. 

Bond markets remind us once again why it is important to hold them within a diversified portfolio. As volatility picks up they rarely fail to cushion our overall portfolio returns and this quarter has been no exception with the Barclays Aggregate Bond Index up 2.21%.

Your Plan and Portfolio

While interesting times may lead to volatility you can bet that some portions of your portfolio may outperform others in any year.  At the Center, we monitor the allocation of your portfolio on a regular basis.  When volatility presents an opportunity to rebalance we will act on your behalf or notify you if a change is needed.  Adding money to your portfolio, managing positions, and tax loss harvesting are some of the strategies that we can take advantage of during periods of volatility. We also anticipate future cash needs so funds are available regardless of market returns.

Here is some additional information we want to share with you this quarter:

Checkout Investment Pulse, by Angela Palacios, CFP®, summarizing some of the research done over the past quarter by our Investment Department.

Investors often avoid that which they don’t understand despite the diversification or return benefits an asset class may provide. Check out Investor Ph.D .

This month Nick Boguth, Investment Research Associate, delves into the equities with a primer on investing in common and preferred stocks.

Jaclyn Jackson, Investment Research Associate, discusses some important developments for the Real Estate Investment Trust asset class.

We strive to keep you informed! You may tune in to our webinars for market updates (there is one coming up soon, Summer Market Update: Staying cool while markets are turbulent. Click here for information and to register). These are meant to supplement your conversations with us so don’t hesitate to reach out any time you have questions or concerns. Thank you for placing your trust in us!

Sincerely,
Angela Palacios CFP®
Director of Investments

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

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Please note that all indices are unmanaged and investors cannot invest directly in an index. An investor who purchases an investment product which attempts to mimic the performance of an index will incur expenses that would reduce returns. Standard & Poor’s 500 (S&P 500): Measures changes in stock market conditions based on the average performance of 500 widely held common stocks. Represents approximately 68% of the investable U.S. equity market. US Bonds represented by Barclay’s US Aggregate Bond Index a market-weighted index of US bonds. 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 Angela Palacios and not necessarily those of 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. 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. Please note that international investing involves special risks, including currency fluctuations, differing financial accounting standards, and possible political and economic volatility.

REITs Get Prime Location in Major Market Indices

Contributed by: Jaclyn Jackson

Any real estate broker would tell you, “location, location, location” is a key factor to consider when purchasing property. It comes as no surprise that on August 31st, 2016, Real Estate Investment Trusts (REITs - for more information on REITs check out the most recent Investor Ph.D.) will break away from Financials to claim prime residence as an individual sector in the Standard & Poor’s 500 and the MSCI market indexes. The new sector signifies the increasing importance of real estate as an asset class in global equity markets and is expected to strengthen the appeal of real estate investment trusts among a wider pool of investors.

With all the volatility markets have experienced this year (check out our First Quarter’s Investment Commentary for reference), investors may be curious about the implications of this change. The good news is that the REIT sector will likely produce positive changes that create better investment choices for investors, decrease volatility in the sector, and help investors build up portfolio diversification.

• More Options: Greater real estate investment visibility could spur the creation of new investment products; more REITs could go public; and non-real estate companies will have the opportunity to monetize their real estate holdings by spinning them into investment trusts. As a result, investors will have a greater variety of real estate investment options and can be more selective in choosing the best-fit investment product for their portfolio. 

• Greater Stability: Increased investment options and new investors might create positive equity flows for real estate equities which would ultimately increase sector liquidity. In other words, investors wouldn’t be stuck with their real estate investments and would be able to more easily sell and purchases real estate positions. Not to mention, a broadened investor base could also help curve the severity of real estate market cycles which would help the economy overall. Lastly, the separation from the Financials sector may help equity REIT stocks experience lower volatility.

• Increased Diversity: Typically, REITs have lower correlation to the performance of the broader market.  Therefore, greater access to REITs would allow investors to create more portfolio diversification. Investment diversification supports portfolio resilience and can help facilitate more consistent returns for long term investors. 

As stated by NAREIT Chair President and Highwoods Properties, Inc. CEO, Ed Fritsch, “REITs build, own, and operate the places where people live, work and play. These include state of the art industrial facilities, class A office buildings and welcoming homes, to name a few.” Let’s face it; real estate is ubiquitous to modern living and a growing part of major economies throughout the world. The individual REIT sector has the potential to create more diverse investment choices and develop new opportunities for investors.

Jaclyn Jackson is an Investment Research Associate at Center for Financial Planning, Inc. and an Investment Representative with Raymond James Financial Services.

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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 decision, and it does not constitute a recommendation. Any opinions are those of Jaclyn Jackson and are not necessarily those of Raymond James. Be advised that investments in real estate and in REITs have various risks, including possible lack of liquidity and devaluation based on adverse economic and regulatory changes. Additionally, investments in REIT's will fluctuate with the value of the underlying properties, and the price at redemption may be more or less than the original price paid. Diversification does not ensure a profit or guarantee against loss. Investing involves risk, investor may incur a profit or loss regardless of the strategies employed. Raymond James is not affiliated with Ed Fritsch or Highwoods Properties, Inc.

Investor Ph.D. Series: ADRs, and REITs …Oh My!

Contributed by: Angela Palacios, CFP®

Dorothy risked everything and traveled into the unknown when going into the haunted forest on her quest to return to Kansas.  At the Center, we prefer to walk in with our eyes wide open. Our Investment Department and Investment Committee conducts thorough research before recommending securities for your portfolio. Investors and advisors tend to stick with what they know when building their portfolios. In doing so, they can overlook opportunities to potentially increase returns or add diversification.  In other cases, investors may jump into less familiar asset classes at the wrong time.

In this installment of Investor Ph.D. we want to take you beyond just investing in domestic equity and preferred securities explained by Nick Boguth. Following are some assets we have considered that may not be at the forefront of your mind.

REITs

REITs or Real Estate Investment Trusts can offer the benefits of diversification, income stream and capital appreciation to an equity portfolio. A REIT is a company that owns income producing real estate. REITs can trade similarly to a stock traded on a stock exchange and be highly liquid or they can be private, non-liquid investments. They pay out all or most of the income they receive from their properties as dividends to investors and, in turn, investors pay the taxes on those dividends. Typical REITs can own commercial or private real estate including apartments, shopping malls, hospitals, hotels, nursing homes, industrial facilities, infrastructure, offices, student housing, storage centers, and timberlands.

A REOC or Real Estate Operating Company is similar to a REIT. The distinction that separates them is a REOC will take the earnings and income streams from their investments and reinvest into the business rather than paying it out to the shareholders. An investor would not expect an income stream from this type of investment, only capital appreciation.

ADRs

ADRs, or American Depository Receipts, are shares of a foreign company that trade on an American stock exchange. ADRs make investing in foreign securities much easier than having to factor in currency exchanges, costs, and logistics of trading on a foreign stock exchange. A bank purchases a block of shares from the foreign company, bundles them, and reissues on a domestic exchange denominated in U.S. dollars. The U.S. investor avoids foreign taxation while the foreign company enjoys increased access and availability to the wealthy North American markets. Once the ADR is listed on the U.S. stock exchange its price is driven by supply and demand. This can result in pricing of the security here to not follow exactly the pricing of the security in its home market. When this happens there is an arbitrage opportunity if the price is too high or too low when you translate its value back into the value in the home country’s currency and exchange. ADRs offer diversification and capital appreciation for investors by adding an international component to portfolios.

We have owned these types of investments for our clients through some of our money managers. We tread carefully into these spaces as many investors have been reaching for yield causing these investments to appear richly valued compared to their historical valuations.

Utilizing these types of securities doesn’t have to be as scary as it was for Dorothy to travel into the haunted forest. Arm yourself with knowledge and a good Financial Planner to help make the best decisions for your financial plan!

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

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The information contained in this post or blog does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Andrea Palacios and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. This information is not intended as a solicitation or an offer to buy or sell any security referred to herein. Investments mentioned may not be suitable for all investors. Investing involves risk and you may incur a profit or loss regardless of strategy selected. International investing involves special risks, including currency fluctuations, differing financial accounting standards, and possible political and economic volatility.

Every investor's situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment. Prior to making an investment decision, please consult with your financial advisor about your individual situation.

Investor Basics: Stocks 101

Contributed by: Nicholas Boguth

Earlier in the Investor Basics series, we went over the basics of bonds. Now we’re going to switch gears to the equity side of the investment universe, and gain a better understanding of the basics of stocks.

What is a stock?

A stock is a claim on a company’s assets, or in other words, a share in ownership. If you own a stock, then you own a piece of the company.

The major difference between stocks and bonds is that bonds have a contractual agreement to pay interest until the bond retires, while owners of stocks have a claim to assets so they hope to make money on capital or price appreciation and/or dividend income. Another major difference between stocks and bonds is that owners of stocks do not get paid in the event of a company’s bankruptcy until after all the bond holders are paid. For these reasons, stocks are typically considered “more volatile” investments.

What are the different types of stock?

There are two main types of stocks – common and preferred.

When hearing people talk about stocks in everyday conversation, it is usually safe to assume that they are talking about common stock. Common stocks are much more prevalent in the market. The major difference in characteristics of common stocks and preferred stocks are – 1. Common stocks do not have a fixed dividend, while preferred stocks do, and 2. Common stocks allow the investor to vote on corporate matters such as who makes up the board of directors, while preferred stocks do not.

Voting rights depend on the number of shares that you own. If you own 1000 shares, you have 1000 votes to cast. Most companies allow votes to be cast by proxy, so the individual investor does not have to be present at things like annual meetings in order to cast a vote. Proxy votes can typically be sent in by mail, or nowadays it is common that you will be alerted via email that you are able to vote on a company’s policy and you may cast it quickly online.

Preferred stocks may not allow the investor to vote on policies, but they do have a fixed dividend that is typically higher than the dividend of a common stock, and in the event of liquidation will be paid before common shareholders (but after bond holders). You may note that a fixed dividend sounds a lot like the fixed interest payment of a bond. This is true, but there is no contractual obligation to pay the dividend on stocks. These similarities typically make preferred shares act like something in between a stock and a bond – something that does not participate in the price movement of a company as much as a common stock, but receives a fixed dividend similar to the interest payment of a bond.

Nicholas Boguth is an Investment Research Associate at Center for Financial Planning, Inc. and an Investment Representative with Raymond James Financial Services.

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This information does not purport to be a complete description of the securities referred to in this material, it is not intended as a solicitation or an offer to buy or sell any security referred to herein. Investments mentioned may not be suitable for all investors. Investing in common stocks always involves risk, including the possibility of losing one's entire investment. Dividends are subject to change and are not guaranteed, dividends must be authorized by a company's board of directors.

Second Quarter Investment Pulse

Contributed by: Angela Palacios, CFP®

We’ve been busy with research this quarter. We listened to discussions on everything ranging from interest rates, to the current state of the economy, to social investing. Here’s a peek into what we’ve been learning! 

Jeff Sherman of Doubleline

Jeff is Doubleline’s head of macro asset allocation and a lead portfolio manager. He shared his thoughts on the fixed income markets as well as some interesting insight into the automotive industry.

Jeff feels yield is a good predictor of 12 month returns so if you want to know what types of returns you will get from your bond portfolio you need not look past its yield. Unfortunately, yields are very low right now.

Is there a catalyst for higher rates?

The simple answer, they think, is no. There has to be pressure from somewhere in the economy for rates to rise. GDP (gross domestic product) growth, a general rise in the price of goods (inflation), or wage inflation could trigger rates to rise. They don’t see any of these scenarios happening in the economy right now leading them to believe rates will be on the rise anytime soon. 

Automotive industry worries

They are worried about the automotive market because there have been a lot of subprime loans given to consumers to buy cars. Car dealerships are even starting to lease pre-owned vehicles—because inventories are very high—which has never been done before. Inventories are unusually high right now because cars are lasting longer and Uber is taking over and replacing the need to own a car in many markets. These factors spell trouble for the industry. 

Benjamin Allen of Parnassus

Social investing has been an area of focus for our research over the past couple of years. The process of incorporating a social or ESG overlay to our portfolios for those interested has many more options and research available now. Ben spoke about their process that starts with fundamental research just like any other asset manager. What makes them different is they also apply a lens for social factors including environmental and corporate governance. Their company is 32 years old, completely independent and employee owned. He discussed the importance of this independence in being able to develop their own personal edge for clients which has been a big driver of their success. It sounds like a little company I know…The Center! Our very own 30 year history as independent and employee owned.

Brian Wesbury, Chief Economist for First Trust Advisors

While attending a financial planning conference recently, Matt Trujillo, CFP®, had the opportunity to listen to Brian Wesbury speak. Often seen on CNBC, Fox News, and Bloomberg TV he always has an interesting viewpoint. He touched on two prevalent topics: inflation and current American lifestyles.

On Inflation

He noted that banks are holding onto large excess reserves and that’s why we haven’t seen much inflation and growth because they aren’t lending the money out. He referred to the M2 money supply which has grown very little over the last 10 years. M2 is a measure of money supply that includes cash and checking deposits (M1) as well as “near money.” “Near money" in M2 includes savings deposits, money markets, and other time deposits, which are less liquid and not as suitable as exchange mediums but can be quickly converted into cash or checking deposits.

On Lifestyle

Brian talked about how there has been very little wage growth but that our lifestyles have still grown due to dramatic innovations in technology. In 1995 if you wanted to purchase 1 Gigabyte of hard drive space it would have cost you $45,000. Then he pulled out his iPhone and said he had 64GB of space, which would have been worth $2.8 Million back in 1995! Another example is Facebook, the world’s most popular media owner, creates no content. Does this increase in lifestyle makeup for the lack of wage increases? He is not the first economist we have heard refer to this phenomenon. I believe that much research is to come on this topic.

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

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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 Angela Palacios and are not necessarily those of Raymond James. This information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Raymond James is not affiliated with and does not endorse the opinions or services of Jeff Sherman, Benjamin Allen, Brian Wesbury or the companies/organizations they represent. Investing involves risk and investors may incur a profit or a loss regardless of strategy selected. Past performance is not a guarantee of future results. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct.

Millennials Matter: Student Loans

Contributed by: Melissa Parkins, CFP®

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

Determine Your Goal

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

Make a Student Loan Inventory

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

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

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

Know Your Options

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

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

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

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

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

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

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

Sandy Adams, CFP®, Earns Certified Financial Transitionist™ Designation

Contributed by: Center for Financial Planning, Inc.

After two years of intense study with the Sudden Money® Institute, lead financial planner and partner Sandy Adams, CFP®, can now add the CeFT™ (Certified Financial Transitionist™) designation to her list of credentials. 

What is a Certified Financial Transitionist™ (CeFT™)?

Every person will experience at least one of the following major life transitions, and the likelihood that more than one at a time will be experienced increases with age.

• Inheritance
• Loss of a parent
• Loss of a spouse
• Divorce
• Major career change
• Retirement
• The sale of a business
• Insurance settlement
• Pro sports or entertainer contract

Whether they begin with an inheritance, the sale of a business, or both simultaneously, transitions thrust individuals and families into a position once considered stable that is now suddenly in flux. Traditional financial planning definitely covers the bases when it comes to important topics such as taxes, investments, cash flow, and estate planning. But that’s only half of the experience of financial change. The other half is the human experience. 

 “As a Certified Financial Transitionist™, I understand human transitions on their deepest levels. I know what influences the way we think and act when our world has suddenly and irrevocably changed. I’m able to identify when a transition is going well and I have tools to help further enhance the experience. And if a client is struggling with their transition, I know how to keep them confident and help them work through their difficulties.”

The Sudden Money® Institute (SMI) has spent 16 years studying the psychology, sociology, and neuroscience of change. They’ve even delved into what thought leaders in the business world say about change and adaptation. They know that perceptions and expectations about change are powerful and can profoundly affect thinking and decision-making.

Sandy is excited to use her tools and new set of skills to help current and future Center clients navigate life transitions. If you think you or someone you know might be helped by having a partner to assist them in balancing the personal and technical side of financial change – give Sandy a call.  She is happy to help!

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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 Sandy Adams and not necessarily those of Raymond James.

Social Security Survivor’s Benefits

Contributed by: James Smiertka

We’d all like to think that we can all count on receiving Social Security benefits during our lifetimes if we work and reach retirement. But in the case that the unforeseen happens, it is important to know how Social Security benefits can affect our survivors. When someone dies who has worked and paid Social Security taxes over their lifetime, certain family members may be eligible for survivor benefits.

Per the Social Security Administration, there are approximately 5 million widows/widowers receiving Social Security benefits based on their deceased spouse’s earnings record. This can be a very important part of a survivor’s overall income.  

What are the benefits that a deceased’s surviving family members might be eligible for?

• A widow/widower can receive a reduced benefit as early as age 60 or full benefits at their full retirement age (FRA). At FRA, they would receive their full benefit, but if they applied between age 60 and FRA they would receive an amount that equals between 71.5% and 99% of their benefit. Divorced surviving spouses are also eligible if the marriage lasted 10 or more years and they did not remarry before age 60 (age 50 if disabled).

• A widow/widower can begin be benefits as early as age 50 if he/she is disabled with the disability starting before or within seven years of the deceased spouse’s death. In addition, if the widow/widower gets remarried after age 60 it will not affect their eligibility (again, age 50 if disabled).

• Surviving spouses and ex-spouses caring for a child, or children, of the deceased spouse (with the child being under age 16 or disabled) are eligible to receive 75% of the deceased spouse’s benefit at any age.  Note:  A survivor benefit is treated the same in regards to the earnings test with the benefit being reduced based on any earnings if the recipient is under FRA. Check out the blog I wrote previously on the earnings test for more information.

• Surviving unmarried children & dependent parents can also receive survivor benefits depending on the circumstances. Keep in mind that the aggregate amount that a family receives in survivor benefits is limited to around 150% to 180% of the deceased worker’s benefit. Here is a breakdown of the amount of benefits survivors may receive:

  • Widow or widower, FRA or older: 100 percent of the deceased worker's benefit amount

  • Widow or widower, age 60 to FRA: 71½ to 99 percent of the deceased worker's basic amount

  • Disabled widow or widower aged 50 through 59: 71½ percent

  • Widow or widower, any age, caring for a child under age 16: 75 percent.

  •  A child under age 18 (19 if still in elementary or secondary school) or disabled:  75 percent.

  • Dependent parent(s) of the deceased worker, age 62 or older:

  • One surviving parent: 82½ percent.

  • Two surviving parents: 75 percent to each parent.

How this information could affect you: If your survivor’s benefit is more than your own benefit, it may make sense to receive this benefit at age 60, as the Social Security Administration states that “survivor benefits based on age will be about the same total amount over a lifetime.” If your own benefit will be greater you are able to switch to your own benefit at age 62 to 70. Additionally, in some cases it can make sense for the spouse with the higher benefit to suspend/grow their benefit until age 70 (depending on age & life expectancy of both spouses) in order to provide a larger survivor benefit to the potential surviving spouse. Even after many lost the ability to file & suspend with the recent Social Security law change, there are still strategies & items to be aware of that can help you be most efficient with your plan. As always, contact your financial planner with any questions or concerns.

James Smiertka is a Client Service Associate at Center for Financial Planning, Inc.

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https://www.ssa.gov/ The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any 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 James Smiertka and not necessarily those of Raymond James. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website's users and/or members.

Webinar in Review: Cash Balance Plans

Contributed by: Clare Lilek

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

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

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

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

• Does the business have a consistent, profitable history?

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

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

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

• Are there multiple owners or partners?

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

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

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

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

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

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

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

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

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