3 Unpleasant Surprises That Impact Your Retirement

3 Unpleasant Surprises That Impact Your Retirement

Today, we are talking about 3 unpleasant surprises that could impact your retirement. 

  • Higher Medicare Premiums
  • Unplanned expenses
  • Higher income taxes

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Surprise 1:  Higher Medicare Premiums

Let me introduce IRMAA. She was originally introduced in 2003. Her role expanded under the Affordable Care Act in 2011. IRMAA isn’t actually a person, it is an acronym. It stands for “Income-Related Monthly Adjustment Amount.”

This provision looks at your income from last year. If it exceeds certain thresholds, your premiums for both Medicare part B and Part D will be higher. The IRMAA surcharges range from $58 to almost $350 per month per person.

Surprise 2: Unplanned Expenses

Hopefully, you have a good understanding of your cash flow. But, we often find things don’t always as planned. Your air conditioner quits. You need a new roof. Healthcare expenses are more than you expect. Your kids need help.

Unplanned expenses happen. And, if the surprise is big enough, it can force you to alter your budget.  

3 unpleasant surprises - woman

Surprise 3:  Higher Taxes

When people retire, they expect their income to go down. And that should mean a smaller tax bill. But that decrease maybe wasn’t as much as you were expecting.

Here is the biggest reason this happens. Many people don’t realize part of their Social Security benefits will be taxable.

The thresholds for this tax trigger aren’t that high either. Couples with a modified adjusted gross income of more than $44,000 could see as much as 85% of their Social Security benefits taxed.

What Can Trigger These Events?

There are a few common events which could trigger these surprises.

Death of a Spouse

You are no longer using the joint tables and the income thresholds are much lower.

Required Minimum Distributions

For some, this might be an extra boost of income. But the impact could be bigger than you might expect.

Converting IRA’s to Roth IRA’s—

This can be a good estate planning strategy for you and your family. It might be even better with the new law eliminating Stretch IRA’s. But the impact could go beyond a one-time tax bill. Be sure to look at the potential impact to your medicare premiums and the taxation of your Social Security benefits.

Talk to a Trusted Advisor

Life is full of surprises and things rarely go exactly as we plan. You may not be able to avoid these traps, but you can be better prepared to deal with them. If you have any questions, be sure to speak to a trusted advisor.

What's On Your Mind?

Do you have a question about what’s happening in the world of finance or investing?  Is there a topic that has you curious?  We’d love to hear from  you.

 We’ll do our best to answer it in a future episode.  To submit your question, fill out the form.  If you prefer, you can send us an email directly.  That email address is neal@flemingwatson.com

Enter Your Question Here

Financial Planning

About the Author

Neal Watson is a Certified Financial Planner™ Professional and a Financial Advisor with Fleming Watson Financial Advisors  He typically works with people who are planning for retirement.  Fleming Watson is a Registered Investment Advisory firm located in Marietta Ohio.  Our firm primarily serves Marietta, Parkersburg, Williamstown, St. Marys, Belpre, Vienna and the surrounding communities in Washington and Noble Counties in Ohio and Wood and Pleasants county in West Virginia.

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The SECURE Act for the Rest of Us

The SECURE Act for The Rest of Us

For those of us who don’t have to worry about required minimum distributions for a few decades, there are some new things in the SECURE Act for the rest of us. Those include:

  • better access to retirement plans,
  • new provisions for penalty-free withdrawals from your Retirement Accounts
  • and a tweak to 529 plans

We’ll go into some of those things on this week’s episode of Monday Morning Money.

Watch: The SECURE Act for The Rest of Us

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Webinar: Death of The Stretch IRA

The Stretch IRA provisions for non-spouse IRA beneficiaries has been eliminated by the SECURE Act.  We have created a short webinar (7 minutes) that explains the changes in more detail.  Click on the button to watch

   

 

Improved access to retirement plans

The main purpose of the SECURE Act is to improve access to retirement plans for more people. It is an acronym for Setting Every Community Up for Retirement Enhancement.

The primary focus is to make it easier and cost-effective for companies to set up a plan.  So a lot of those provisions don’t really apply to most of us.  

One item which could affect you though is expanded eligibility for part time workers.   The new law makes it easier for long-term, part-time employees to be eligible for a retirement plan. Under the new rules, if you work at least 500 hours in 3 consecutive years, you will now be eligible to participate in your employer’s plan.  This is far less restrictive than in past years.

More penalty free access to funds

You can now take penalty-free withdrawals from an IRA or retirement plan for birthing or adoption costs. If you are having a baby or adopting a child, you will be able to withdraw up to $5,000 to help cover those expenses. For a couple, this means they can withdraw up to $10,000 total–$5,000 each. You will still have to pay income taxes, but you will not face the 10% early withdrawal penalty.

SECURE Act for Us
SECURE Act Student Loans

A new tax advantaged way to pay student loans.

Another provision of the new law allows you to withdraw $10,000 from a 529 college savings plan to pay on student loans. Before this act, student loans were not considered a qualified education expense. That meant you had to pay taxes and penalties if you withdrew money from a 529 plan to pay towards those debts. Now you can access that money for that purpose.

Lifetime income provisions.

Administratively speaking, plan sponsors now have to make annual “lifetime income disclosure statements.” This tells you how much income you could get each month if you bought an immediate annuity. Those will simply be estimates.

There are also some provisions for plan sponsors to make it easier to offer annuities within a plan. This may or may not be a good thing. Annuities are one of the most abused financial products out there, therefore you should be very careful about using one.

Consult a trusted Advisor

Any time we see major changes like this, it is a good idea to review your plans. Talk to a trusted advisor to see if any of these new provisions will impact you.

What's On Your Mind?

Do you have a question about what’s happening in the world of finance or investing?  Is there a topic that has you curious?  We’d love to hear from  you.

 We’ll do our best to answer it in a future episode.  To submit your question, fill out the form.  If you prefer, you can send us an email directly.  That email address is neal@flemingwatson.com

Enter Your Question Here

Financial Planning

About the Author

Neal Watson is a Certified Financial Planner™ Professional and a Financial Advisor with Fleming Watson Financial Advisors  He typically works with people who are planning for retirement.  Fleming Watson is a Registered Investment Advisory firm located in Marietta Ohio.  Our firm primarily serves Marietta, Parkersburg, Williamstown, St. Marys, Belpre, Vienna and the surrounding communities in Washington and Noble Counties in Ohio and Wood and Pleasants county in West Virginia.

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Big Changes to Required Minimum Distributions

Big Changes To Required Minimum Distributions

A new law that passed at the end of 2019 will bring big changes to our retirement savings. This includes changes to required minimum distributions. We’ll talk about what’s different right after this.

Watch: Big Changes to Required Minimum Distributions

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After a major delay, the SECURE Act finally passed through the Senate. It was signed into law and will take effect in 2020. There are some major changes that will impact those trying to save for retirement. And likewise, there are some big changes that impact those already retired. Today we will focus on the changes impacting current retirees.

Changes to Required Minimum Distributions

The biggest alteration affects required minimum distributions. RMD’s have been a provision of the tax code for decades. It was a way to force people to start taking money from their IRA’s and retirement plans and pay taxes.

Under the old rules, you had to start taking money out of your qualified retirement accounts the year you reached age 70 1/2.

The SECURE act eliminated the half year and delayed the required beginning date. If you haven’t already started your RMD’s, meaning you aren’t already 70 1/2, you can now wait until the year you reach age 72.

But, if you’ve already started, you have to continue. You can’t suspend them.

The law will also change the table used to calculate the required amount. But those changes won’t take effect until 2021.

Death of the Stretch IRA

The second major provision is the elimination of the Stretch IRA. This impacts non-spouse beneficiaries of IRA accounts. Under the old rules, a non-spouse beneficiary could distribute their inherited balance over a long period of time.

Now the full account must be completely distributed in 10 years. There are a few exceptions, but this is significant.

For example, under the old rules, a 50 year-old could distribute an inherited IRA over 34 years. now they have to liquidate the account 3 times as fast. Here is the problem.  This also significantly accelerates the payment of income taxes on those balances.

Please keep in mind, this only applies to those accounts who belonged to someone who died after 2019. If you already have an inherited IRA account, your schedule will remain exactly the same.

Webinar: Death of The Stretch IRA

The Stretch IRA provisions for non-spouse IRA beneficiaries has been eliminated.  We have created a short webinar (7 minutes) that explains the changes in more detail.  

No Restrictions on IRA Contributions

If you are over age 70 1/2 and still working, you can now contribute to your IRA. The caveat is you have to have earned income to make that contribution. In years past, once you reached your required beginning date, you were no longer allowed to put money in a traditional IRA.

New Laws Mean It’s Time to Review Your Plans

New laws mean you should do a quick review of your overall plans.  These changes could impact you and what you and your family want to accomplish over the long-term.  So be sure to discuss these new provisions and how they might impact you.

What's On Your Mind?

Do you have a question about what’s happening in the world of finance or investing?  Is there a topic that has you curious?  We’d love to hear from  you.

 We’ll do our best to answer it in a future episode.  To submit your question, fill out the form.  If you prefer, you can send us an email directly.  That email address is neal@flemingwatson.com

Enter Your Question Here

Financial Planning

About the Author

Neal Watson is a Certified Financial Planner™ Professional and a Financial Advisor with Fleming Watson Financial Advisors  He typically works with people who are planning for retirement.  Fleming Watson is a Registered Investment Advisory firm located in Marietta Ohio.  Our firm primarily serves Marietta, Parkersburg, Williamstown, St. Marys, Belpre, Vienna and the surrounding communities in Washington and Noble Counties in Ohio and Wood and Pleasants county in West Virginia.

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What Happens to the Stock Market in Election Years

In case you hadn’t heard, 2020 is a big election year. In fact, it is maybe one of the most polarized and heated presidential elections in quite some time.  And we don’t even know who’s running yet. It will likely have an impact on the investment world too. What happens to the stock market in election years?

We’ll take a look back at election years since 1948 and see if that offers any insight into what we could expect in 2020.

Watch: What Happens to the Stock Market in Election Years?

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History doesn’t always repeat itself, but it often rhymes. You can look at certain historical trends and form some fairly realistic expectations. For example, a year ago we looked at what happens the year after a down year in stocks.  In this case, the trend proved to be a solid guide for this year.

2020 is an election year. We thought it would be interesting to look at all the election years after World War II. What happens to the stock market in election years? We found a couple of interesting trends.

Trend 1: Incumbents Are Tough to Beat

The first one has nothing to do with stocks and investing. There have been 18 presidential elections since the end of World War II. It started with Truman’s win over Thomas Dewey in 1948. Ten of those elections featured an incumbent president running against a challenger. In seven of those 10, the incumbent won.

The losers:

  • Gerald Ford lost to Jimmy Carter in 1976.
  • Jimmy Carter lost to Ronald Reagan in 1980, and
  • George H. W. Bush lost to Bill Clinton in 1992.

Trend 2: Stocks Have Done Well in Presidential Election Years

What did the stock market do in all those election years?

  • The stock market posted gains in 16 of those 18 years. 
  • It also saw declines in two of those years.
  • The best election year was 1980 when the S&P 500 improved by more than 32%. And this includes the return from dividends. 
  • 11 of the 16 positive years, the stock market posted double-digit gains.
  • In 2008, the stock market was down 37%.  It was the worst return in an election year.
  • The other negative year was in 2000. That year the stock market decreased 9.1%
  • On average, the compounded annual return for these 18 election years is 8.8%
Click to Enlarge the Chart.

Forming Expectations

What does this mean for 2020? History tells us we should expect a positive year.  In addition, we currently have low unemployment, projected earnings growth, and a growing economy.  All of which would support the expectation for a positive year.

But things don’t always follow historical trends and the supporting data can change without notice.  The added drama of politics will make things a bit more turbulent and interesting in 2020. 

What's On Your Mind?

Do you have a question about what’s happening in the world of finance or investing?  Is there a topic that has you curious?  We’d love to hear from  you.

 We’ll do our best to answer it in a future episode.  To submit your question, fill out the form.  If you prefer, you can send us an email directly.  That email address is neal@flemingwatson.com

Enter Your Question Here

Financial Planning

About the Author

Neal Watson is a Certified Financial Planner™ Professional and a Financial Advisor with Fleming Watson Financial Advisors  He typically works with people who are planning for retirement.  Fleming Watson is a Registered Investment Advisory firm located in Marietta Ohio.  Our firm primarily serves Marietta, Parkersburg, Williamstown, St. Marys, Belpre, Vienna and the surrounding communities in Washington and Noble Counties in Ohio and Wood and Pleasants county in West Virginia.

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Were The Predictions Right?

With two weeks remaining in 2019, we review a couple of blog posts from 2018. Both were looking ahead to what might happen this year.  Were the predictions right?  Let’s take a look.

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After a Down Year for Stocks, What Happens Next?

Since 1950, there have only been 15 years when the S&P 500 finished underwater including 2018.  With the concerns at the time, most people were wondering if we would see another negative year in 2019. 

We went digging into the numbers to see how often the stock market posted back-to-back negative years, to see what we should expect.

The data showed in the 14 previous events, the stock market finished higher the next year 11 times. And not just positive a little bit. The average gain following a down year was over 17%

Were The Predictions Right

Was the Prediction Right?

It looks like we will be able to say the next year was positive 12 out of 15—barring a major meltdown in the next couple of weeks.  It also looks like the average gain the year after the down year will go up as well.

The Wall Street Crystal Ball

We also looked at how well the big investment firms could predict the future. In fact we even bought our own crystal ball to see if we could get in on the act. 

We showed 12 predictions from the some of the biggest names on Wall Street.  All 12 predicted gains for the stock market.  Here are some of the highlights.

  • The most pessimistic prediction for stocks was a 3% gain.
  • 5 of the 12 predicted single digit returns for the S&P 500, while 7 forecasted double digit gains.
  • 3 of these firms predicted returns of 20% or more.
  • The average guess for all 12 was a positive return of 14%.
  • And the most optimistic prediction was for a 26% gain.
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Were the Predictions Right?

With just two weeks to go, The S&P 500 is up well over 26% for the year. At least crystal balls at a handful of these firms were close.  That’s a pretty big improvement over 2018’s predictions.

What's On Your Mind?

Do you have a question about what’s happening in the world of finance or investing?  Is there a topic that has you curious?  We’d love to hear from  you.

 We’ll do our best to answer it in a future episode.  To submit your question, fill out the form.  If you prefer, you can send us an email directly.  That email address is neal@flemingwatson.com

Enter Your Question Here

Financial Planning

About the Author

Neal Watson is a Certified Financial Planner™ Professional and a Financial Advisor with Fleming Watson Financial Advisors  He typically works with people who are planning for retirement.  Fleming Watson is a Registered Investment Advisory firm located in Marietta Ohio.  Our firm primarily serves Marietta, Parkersburg, Williamstown, St. Marys, Belpre, Vienna and the surrounding communities in Washington and Noble Counties in Ohio and Wood and Pleasants county in West Virginia.

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The Financial Planners 2019 Holiday Gift Guide

What do you get the young adult child who already has everything?  How many gift cards do you really want to buy? Socks?  Really?  Fear not! We have created the Financial Planner’s 2019 Holiday Gift Guide.  And it is sure to be a big hit.   

Watch: 2019 Holiday Gift Guide

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Free Download: The Financial Planner's 2019 Holiday Gift Guide

For that last minute shopper, here is our Financial Planner’s 2019 Holiday Gift Guide.  We cover the basics of Roth IRA’s and 529 Plans.  We’ll also show you—and the lucky recipient—what kind of impact your gift can make on their life.  Click on the button to download your free copy.

The Struggle is Real!

As December rolls around each year, it is always a struggle to come up with gift ideas. And I thought maybe you were having similar problems. So I decided to come up with the financial planners holiday gift guide.

Do you have younger adult children or grandchildren? Tired of buying gift cards to restaurants they hate or ugly socks?

The Perfect Solution: A Roth IRA

What could be a better gift than years of tax free compounded growth? That’s right folks, a Roth IRA makes a perfect gift for that young adult in your life.

Just imagine the riveting conversation you’ll have sitting around the tree. You can talk about compound interest and how “You may not appreciate this now, but one day you’ll be glad you have it. Shoot I wish my parents had started a Roth IRA for me for Christmas. Instead, I got a garage door opener.”   

True Story…

One year, as a twenty-something, my parents bought me a garage door opener.  Not only was it a surprise, it was one of the best gifts I’ve ever received.  You don’t appreciate it until you have to get out of your car in a driving rain storm to open the garage door!

Cam Hardiman

This is Jim’s great grandson (and Neal and Susan’s grandson).  Cam Hardiman was born on November 3rd, 2019.

For the Young Child: Tax Free Growth, for College

We’ve all watched these kids tear into boxes like a tornado. Only to see them spend more time playing with the boxes.

Not this year.  No boxes.  No hermetically sealed plastic packaging you can only open with a blow torch. 

What could be better? You guessed it, a 529 Plan.  This means tax free growth—FOR COLLEGE! 

 

Seriously Good Gifts

Roth IRA’s and 529 plans make terrific Christmas gifts. They aren’t exciting, and you may actually be able to hear  eyes roll.

But, at some point, they will be far more useful than that pair of socks, the remote control car or even a garage door opener.

A Roth IRA offers your kids or grandkids tax free compounding for their retirement. It may not be much today. In thirty or forty years they’ll look back and say, “Wow! Mom and Dad (or grandma and grandpa) did this for me. And look at it now.”

Same thing with 529 plans. The costs of college won’t be coming down anytime soon. At some point. someone will appreciate it more than you may ever know.

Here. We'll show you what we mean.

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Click to enlarge
2019 Holiday Gift Guide
Click to enlarge

What's On Your Mind?

Do you have a question about what’s happening in the world of finance or investing?  Is there a topic that has you curious?  We’d love to hear from  you.

 We’ll do our best to answer it in a future episode.  To submit your question, fill out the form.  If you prefer, you can send us an email directly.  That email address is neal@flemingwatson.com

Enter Your Question Here

Financial Planning

About the Author

Neal Watson is a Certified Financial Planner™ Professional and a Financial Advisor with Fleming Watson Financial Advisors  He typically works with people who are planning for retirement.  Fleming Watson is a Registered Investment Advisory firm located in Marietta Ohio.  Our firm primarily serves Marietta, Parkersburg, Williamstown, St. Marys, Belpre, Vienna and the surrounding communities in Washington and Noble Counties in Ohio and Wood and Pleasants county in West Virginia.

Our Most Recent Videos And Posts

Earning Compound Interest

Earning compound interest can make you money.  Potentially it can make you a lot of money.  Today we’ll show you two examples of how you can benefit from compounded returns.

This is part 2 of our Compound Interest Series.  Part 1: Paying Compound Interest, can be found here.  

Watch: Earning Compound Interest

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Free Download: Earning Compound Interest

Compound interest is a tricky subject.  We created a download  you can use to help better understand how you can benefit from compounded returns.  Click on the button to download your copy .

Paying Compound Interest

Earning Compound Interest: The Basics

There are two key components. First is the return you earn. When we are saving and investing, we have many choices. Some investments have greater earning potential than others.

The second key component is time. The longer you can let your money compound the better.

Here is our first example. This is something as a financial planner you learn on day one.

You contribute $2,000 per year at the beginning of every year, and you do this for 40 years—$80,000 total. And you earn the long-term average return of the stock market, which is 10%. It grows to nearly a million dollars.

This was the “pitch” you learned to convince someone to make an IRA contribution. But let’s take a look at how the returns you earn impact the totals.

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The Impact of Time and The Cost of Waiting

We said earlier, time matters. In fact, time might be your biggest asset as a saver. Here is another example from day one of financial planner school.  And it illustrates the cost of waiting to start saving.

Investor A: Save Early

Investor A starts saving $2,000 per year at age 25. She continues that for 20 years and stops. And her future returns average 10% per year.

click image to enlarge

Investor B: Wait To Save

Investor B doesn’t start saving until he reaches age 45. He uses the same investments and earns the same 10% average return.

click image to enlarge

Waiting to start saving means you have to save more to achieve the same result.  In this example, Investor A saved $40,000 total and reached $850,000.  Investor B had to save $13,500 per year, or $270,000 total, to accumulate $850,000 at the same time.  

The impact of compound interest isn’t linear. It’s exponential. And when you understand how it works, you can alter your future for the better. Teaching younger people to save early in life is critical.

What's On Your Mind?

Do you have a question about what’s happening in the world of finance or investing?  Is there a topic that has you curious?  We’d love to hear from  you.

 We’ll do our best to answer it in a future episode.  To submit your question, fill out the form.  If you prefer, you can send us an email directly.  That email address is neal@flemingwatson.com

Enter Your Question Here

Financial Planning

About the Author

Neal Watson is a Certified Financial Planner™ Professional and a Financial Advisor with Fleming Watson Financial Advisors  He typically works with people who are planning for retirement.  Fleming Watson is a Registered Investment Advisory firm located in Marietta Ohio.  Our firm primarily serves Marietta, Parkersburg, Williamstown, St. Marys, Belpre, Vienna and the surrounding communities in Washington and Noble Counties in Ohio and Wood and Pleasants county in West Virginia.

Our Most Recent Videos And Posts

Paying Compound Interest

Paying Compound Interest

On today’s show, we talk about paying compound interest.  We’ll discuss:

  • The impact of time
  • The impact of the interest rate

Be sure to scroll down for the charts and graphs that help illustrate how this can impact you.

Watch: Paying Compound Interest

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Listen Now: Paying Compound Interest

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Free Download: The Impact of Paying Compound Interest

Compound interest is a tricky subject.  So we created this free download to help illustrate how it can impact your life.  To download your free copy, please click on the button.  

Paying Compound Interest Example 1: The Mortgage

How does compound interest make you pay? The best example is the mortgage. Most of us borrow money to buy a house. And one of the common decisions is choosing between a 15 or 30-year loan. So let’s look at how this plays out.

30 Year Mortgage

Click Image to Enlarge

You borrow $100,000. Right now, rates for a 30-year mortgage are about 4%. This means your monthly payment is about $478. Because of the effects of compounding, the total cost of this loan over three decades will be $71,870.

15 Year Mortgage

Click Image to Enlarge

If you borrow the same amount over 15 years, your interest rate is lower—about 3.38%. But your payment is also higher. It jumps to $709, not quite twice as much. But over 15 years, your total interest cost is $27,576.

A 15-year mortgage, if you can afford the payment, will save you over $44,000 in total interest expense. That’s nearly half of the loan amount.

For most people, a lot goes into their decision about whether to do a 15-year or a 30-year loan. And the primary factor is the size of the payment. But this illustrates how powerful time can be.

Paying Compound Interest Example 2: Credit Cards

Let’s look at another common example. Credit Cards. Many credit cards require you to pay 2% of your balance as a minimum payment. And credit cards often have rates which could exceed 20%, but let’s use 20% for this example.

Credit Card Repayment

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You start with a balance of $5,000 and make no other purchases. Your minimum payment is $100. You pay this each month until you eliminate the debt.

It will take you 9 years, and it will cost you over $5,800 in interest. This means you pay more in interest than your original purchases.

What's On Your Mind?

Do you have a question about what’s happening in the world of finance or investing?  Is there a topic that has you curious?  We’d love to hear from  you.

 We’ll do our best to answer it in a future episode.  To submit your question, fill out the form.  If you prefer, you can send us an email directly.  That email address is neal@flemingwatson.com

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Financial Planning

About the Author

Neal Watson is a Certified Financial Planner™ Professional and a Financial Advisor with Fleming Watson Financial Advisors  He typically works with people who are planning for retirement.  Fleming Watson is a Registered Investment Advisory firm located in Marietta Ohio.  Our firm primarily serves Marietta, Parkersburg, Williamstown, St. Marys, Belpre, Vienna and the surrounding communities in Washington and Noble Counties in Ohio and Wood and Pleasants county in West Virginia.

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Year End Tax Tips for 2019

Only five weeks remain this year.  Today we offer some year end tax tips for 2019.  On this show we talk about:

  • Loss Harvesting
  • Qualified Charitable Distributions
  • And Capital Gains Distributions from Mutual Funds

Watch: Year End Tax Tips for 2019

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Year End Tax Tip #1 for 2019: Loss Harvesting

Year End Tax Tips for 2019

Let’s start with something called “loss harvesting.” If you own an investment that has decreased in value, you might be able to sell it and reduce your taxes. Here is how this works.

First, the investment can’t be in an IRA or a 401(k). It has to be in a taxable account.

Secondly, if it has decreased below what you paid for it, this is called your cost basis, you can sell it and reduce your tax liability.

Any losses you generate will offset capital gains. But, you can also use up to $3,000 of capital losses against your other income. The rest you typically carry forward to next year. You can use it against prior years taxes, but that gets more complicated.

Here is an important thing to remember. You can’t buy the same position within 30 days of the sale. So let’s say you sold Ford stock for a loss. You have to wait more than 31 days to buy it back. Otherwise, you have a wash sale and your losses will be disallowed.

Now, here is the issue. When the investment markets have been very strong like they have this year, it can be difficult to find those losses. But you may still have them and it might make sense to take advantage of them.

Year End Tax Tip #2 for 2019: Qualified Charitable Distributions From An IRA

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The next thing to consider is a qualified charitable distribution from your IRA. There are some very specific rules for this and here are the basics.

First, you must be at least 70 1/2.

Secondly, the funds must go from your IRA directly to the charity of your choice.

How does this help you? Well you don’t have to report the distribution as income. So if you aren’t spending your required minimum distribution, this may be able to save you some money.

Year End Tax Tip 3 for 2019: Watch Out For Capital Gains Distributions

Year End tax Tips for 2019 3

This last item isn’t so much something that can save you money, but may help you avoid some trouble next spring.

If you own actively managed mutual funds in a taxable account, pay attention to capital gains distributions. These happen when the fund managers buy and sell positions in the fund. By law, they must distribute those proceeds to their shareholders.

Here is where the potential problem lies.

  1. In good years like this, those gain distributions can be large.
  2. Most of the time, investors automatically allow those distributions to reinvest. This means they buy more shares of the fund.
  3. If they are big enough, it could cause a cash crunch next spring. What this means is your refund could be smaller, or you may owe more than you were expecting.

So how do you deal with this? Unless you sell your position, you can’t avoid the gains. But you may want to take the distribution in cash instead. This can help you avoid the cash crunch and allow you to diversify your holdings a little.

Take some time in the next few weeks to talk to your tax expert or your financial advisor. Planning ahead can help you save money or avoid a potential headache later.

What's On Your Mind?

Do you have a question about what’s happening in the world of finance or investing?  Is there a topic that has you curious?  We’d love to hear from  you.

 We’ll do our best to answer it in a future episode.  To submit your question, fill out the form.  If you prefer, you can send us an email directly.  That email address is neal@flemingwatson.com

Enter Your Question Here

Financial Planning

About the Author

Neal Watson is a Certified Financial Planner™ Professional and a Financial Advisor with Fleming Watson Financial Advisors  He typically works with people who are planning for retirement.  Fleming Watson is a Registered Investment Advisory firm located in Marietta Ohio.  Our firm primarily serves Marietta, Parkersburg, Williamstown, St. Marys, Belpre, Vienna and the surrounding communities in Washington and Noble Counties in Ohio and Wood and Pleasants county in West Virginia.

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Is Gold A Good Investment?

Is gold a good investment?  We answer a listener question about the shiny metal.  We will discuss:

  • Where gold really shines
  • Some potential costs
  • And things to consider when deciding if it is right for you.

Watch: Is Gold A Good Investment?

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Today, Jerry asks this question, “With all of the wild moves in the stock market, a political mess, and these low-interest rates, should I be using gold?”

All that glitters is gold, or is it? As an asset class, the shiny metal tends to get a lot of attention.  In most cases, it rises to popularity when the doom and gloom sets in. And when pessimism is high, it’s not uncommon to see and hear a lot of advertisements for it.

But is gold a good investment? It’s beauty is in the eye of the beholder.

Where Gold Really Shines

At times gold, does well when stocks don’t. For example, during the dot com bust in 2000-2002, gold generated a total return of a little over 20%. US stocks declined more than 37% over that same three-year time frame.

In 2008, the US stock market was down 37%. Gold increased by 5%.

So it can be a good investment for diversification.

Is Gold A Good Investment
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Where Gold Loses its Luster

But there are a few drawbacks. Many people we talk to believe gold offers a level of safety. The data paints a different picture. Like stocks, gold has some extreme declines. The most recent one happened between 2013 and 2015. During those three years, gold dropped more than 37%. It isn’t as safe as people want to believe.

Is Gold a Good Investment-1315

Be Aware of the Costs

The other issue with gold stems from how you buy and sell it. If you wish to buy coins or bullion, transaction costs can eat into your returns. Those fees and commissions have decreased through the years, but they are still a factor.

One way to reduce those costs is to use an exchange traded fund designed to track the price of gold. Some funds own the metal. And we know of one fund who will actually deliver the metal to you when you redeem your shares.

The internal costs of these funds are small. In addition, the major discount brokers now offer zero commission trades for ETF’s. That also can keep your costs lower.

Buying gold in an individual retirement account can also be a hassle or result in extra fees. Not every custodian will hold the physical metal. And those who do will charge fees for storage and other services. Again this is where using ETF’s can make things much simpler and cost-effective.

Is Gold a Good Investment for You?

Gold can be a good part of your nest egg, as long as you understand the whole picture. It can be a buffer against stock market volatility. But don’t expect it to be completely safe either.

And you have to decide how you want to invest. Buying the actual metal adds costs and complexities to your situation.

After you’ve done your research and understand the ins and outs, you can make the choice.

What's On Your Mind?

Do you have a question about what’s happening in the world of finance or investing?  Is there a topic that has you curious?  We’d love to hear from  you.

 We’ll do our best to answer it in a future episode.  To submit your question, fill out the form.  If you prefer, you can send us an email directly.  That email address is neal@flemingwatson.com

Enter Your Question Here

Financial Planning

About the Author

Neal Watson is a Certified Financial Planner™ Professional and a Financial Advisor with Fleming Watson Financial Advisors  He typically works with people who are planning for retirement.  Fleming Watson is a Registered Investment Advisory firm located in Marietta Ohio.  Our firm primarily serves Marietta, Parkersburg, Williamstown, St. Marys, Belpre, Vienna and the surrounding communities in Washington and Noble Counties in Ohio and Wood and Pleasants county in West Virginia.

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