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Book Review – All In Startup

Pocket Aces

Pocket Aces (Photo credit: John-Morgan)

If you’ve ever had a million dollar idea and perhaps even pondered taking that idea to the next level and turning it into a business, then reading this book will help you correctly identify the right direction you need to take.

Set in the bright lights and big city of Las Vegas the book takes us into the life of a struggling entrepreneur contemplating whether to remove his business from life support while finding himself moving closer and closer to the final table at the World Series of Poker.

Author Diana Kander does a remarkable job of tying together the similarities to a successful poker strategy and a budding entrepreneurial startup.

What I really enjoyed about the book was not only its quick to-the-point chapters, but Mrs. Kander’s amazing ability to tell the risks and pitfalls of starting a business though story – a story that follows the whirlwind plight of a man struggling to make sense of the downfall of what he thought was a sure thing.

Mrs. Kander’s background makes her more than qualified to write such a book (just read the book jacket or do a Google search). As for me, a business professor (among other hats I wear), this book will be required reading for my students. Hopefully my students won’t feel it’s required once they immerse themselves in the logic and wisdom the book offers. I’m hoping they go all in.

3 Do Over Options For Social Security Benefits

do overs as easy as jumping in the lake

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You’re allowed to file for your Social Security retirement benefits when you reach age 62 (in general). Most advisors recommend that you delay filing until some later date to better maximize your lifetime benefits. But what do those advisors know anyhow?

At least that is what you were thinking when you first filed. After all, you’ve paid into the system for your entire working life, you deserve to get the money back out, right? Plus, who knows when Social Security will go bankrupt, right? Gotta get the money while you can!

Then a couple of years pass and you realize that you short-changed yourself (and your spouse) by taking early benefits. Turns out that you didn’t need that money at 62 – you could have delayed. And you’ve come to realize that Social Security is not likely to go away, at least not in your lifetime. (Maybe those advisors were right after all?) Keep reading…

Retrieving a Prior-Year Tax Return Copy

my tax return copy is lost somewhere in this city

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Sometimes you need access to a previous year tax return copy, and dadgummit you just pitched the box of tax copies from 2011, thinking you couldn’t possibly need it again!  There are ways to get this information – some easier than others.

First of all, if you prepared and filed your own return using one of the commercial programs, and you’ve maintained your access to the program over the years, you should be able to go back and re-print a copy of the return from that year.  This is the quick and simple method.

If you had a tax professional prepare and file the return for you, she should have a copy of your return – if not the fileable copy, then at least a client’s or preparer’s copy, which should be adequate for fulfilling most requirements.  Many preparers retain these copies, with supporting documentation, for many years for just this sort of purpose.  Our office maintains copies of all returns we’ve filed, for example.  Keep reading…

Should Insurance Agents Provide Financial Advice and Services?

see no evil

(Photo credit: McBeths Photography)

Over the last few weeks I’ve had the opportunity and fortune to work with graduate students on a number of financial and ethical issues presented to them in their classes. Of the many issues presented there was one issue that we discussed (argued) over more than any other topic; it was the suitability versus fiduciary standard.

Most of our readers know that our firm not only follows but embraces the fiduciary standard where we are legally bound to act in the best interests of our clients.

This brings me to the title question of this piece – should insurance agents provide financial, advice and or financial services?

Keep reading…

Using First Year RMD Delay to Your Advantage

Photo courtesy of Alicja Colon on unsplash.com.

Photo courtesy of Alicja Colon on unsplash.com.

When you are first subject to RMD (Required Minimum Distributions), which for most folks* is the year that you reach age 70½, you are allowed until April 1 of the following year to receive that first minimum distribution.  For all other years you must take your RMD by December 31 of that year.  For many folks, it makes the most sense to take that first year RMD during the first tax year (by December 31 of the year that you’re age 70½), because otherwise you’ll have two RMDs hitting your tax return in that year.  However, in some cases, it might work to your advantage to delay that first distribution until at least the beginning of the following year – as long as you make it by April 1, you’re golden.

There may be many circumstances that could make this delay work to your advantage – maybe you’re still working in the year you reach age 70½ and your income is much higher than it will be the following year, for example. Keep reading…

How to Deal With Missed Required Minimum Distributions

fixing missed required minimum distributions can be like staring into the sun

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What happens when a beneficiary doesn’t act in a timely fashion with regard to taking Required Minimum Distributions from the inherited IRA?  In other words, what are your options if you’ve missed Required Minimum Distributions (RMDs) in prior years?

The Inheritance

So, let’s say you inherited an IRA from your mother – this was her own IRA that she had contributed to or rolled over funds from a qualified plan at some point, and had designated you as the sole primary beneficiary.  Things get really hectic and confusing after the death of a parent, and sometimes we don’t cover all of the bases properly… and in this example, you didn’t realize that you needed to begin taking Required Minimum Distributions (RMD) from your inherited IRA as of December 31 of the year following the year of your mother’s death.  As of now, for example’s sake, let’s say we’re in the fourth year after your mother’s passing. (see Notes below) Keep reading…

Apple Pie and Ice Cream…Vanilla Ice Cream

Apple pie

Apple pie (Photo credit: Wikipedia)

From time to time we get asked by our clients and prospective clients why we manage our clients’ money the way that we do. Some even gravitate to our firm because of the way that we invest and our philosophy. Others shy away because they are looking for management that will beat the market and always make money and never lose money. Note: This is impossible. But hey, some folks still chase that illusion.

As many of our readers know our investment philosophy is pretty plain – like apple pie and ice cream. To make this summer analogy more apropos, when you go to the store to buy ice cream vanilla is generally cheaper and in more supply. As you peruse further into the freezer you start to come across more exotic flavors, combinations and brand names that not only look (and may taste) more appealing, but are also more expensive and you get less (.75 quarts instead of 1.75).

Granted these flavors look good initially, but eventually over time you’ve paid more for less.

Keep reading…

Annuity in an IRA? Maybe, now

Annuities can produce mountains of fees

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Forever and a day, the rule of thumb has been that you should not use IRA funds to purchase an annuity – primarily because traditional annuities had the primary feature of tax deferral. Since an IRA is already tax-deferred, it’s duplication of effort plus a not insignificant additional cost to include an annuity in an IRA.  This hasn’t stopped enthusiastic sales approaches by annuity companies – plus new features may make it a more realistic approach.

Changes in the annuity landscape have made some inroads against this rule of thumb – including guaranteed living benefit riders, death benefits, and other options.  Recently the IRS made a change to its rules regarding IRAs and annuities that will likely make the use of annuities even more popular in IRAs: The use of the lesser of 25% or $125,000 of the IRA balance (also applies to 401(k) and other qualified retirement plans) for the purchase of “longevity insurance”, which is another term for a deferred annuity. Keep reading…

Resurrecting the Qualified Charitable Distribution?

You could use your computer to make a qualified charitable distribution

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This past week the US House of Representatives passed a bill (HR 4719, known as the America Gives More Act) which would re-instate the Qualified Charitable Distribution from IRAs and make the provision permanent.  This provision expired at the end of 2013, as it has multiple times in the past, only to be re-instated temporarily time and again.

A Qualified Charitable Distribution (QCD) is when a person who is at least age 70½ years of age and subject to Required Minimum Distributions from an IRA is allowed to make a distribution from the IRA and direct the distribution to a qualified charitable organization without having to recognize the income for taxable purposes.  This has been a popular option for many taxpayers, especially since the QCD can also be recognized as the Required Minimum Distribution for the year from the IRA. Keep reading…

How to Compute Your Monthly Social Security Benefit

steps to compute your monthly social security benefit

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So you’ve seen your statement from Social Security, showing what your benefit might be at various stages in your life.  But not everyone files for benefits at exactly age 62 or 66 – quite often there are months or years that pass before you actually file.  This article will show you how to compute your monthly Social Security benefit, no matter when you file.

Computing your monthly Social Security benefit

First of all, in order to compute your monthly Social Security benefit, you need to know two things: your Primary Insurance Amount (PIA) and your Full Retirement Age (FRA).  The PIA is rather complicated to define, but for a shorthand version of this figure, you might use the figure that is on your statement from Social Security as payable to you on your Full Retirement Age (or “normal” retirement age).  Keep reading…

The Dog Ate My Tax Receipts Bill

dog ate my tax receiptsNow here’s some legislation that I could get behind!

Recently, House Representative Steve Stockman (R-TX) introduced a bill in response to the IRS’ lame excuse of a “computer glitch” that purportedly erased all of the incriminating evidence from the agency’s computers.  This was part of the testimony offered by former IRS Exempt Organizations Division director Lois Lerner in response to the accusation that her division targeted organizations critical of the current administration.

Stockman’s bill provides that if the IRS can use lame, flimsy excuses to avoid prosecution, taxpayers should be allowed to use similar excuses.  The actual text of the bill follows below: Keep reading…

Should The CFP® Board Require Recertification?

CFP Recertification Exam (just like doctors)

Image courtesy of stockimages at FreeDigitalPhotos.net

I wanted to post this article to see if any of our readers, both planners have an opinion on the question of whether you think the CFP® Board should require CFP® professionals to get recertified in order to keep the prestigious CFP® designation.

In recent years the Board has been marketing the CFP® designation as the trusted mark and gold standard when it comes to clients seeking professional financial planning. As you may or may not know there are no laws dictating who can call themselves a financial planner. In other words, anyone can say they’re a financial planner regardless of expertise, experience, ethics, or education (the Board’s 4 E’s).

To be a CERTIFIED FINANCIAL PLANNER™ requires much more rigorous work, testing and education, among others.

Keep reading…

QDRO vs Transfer Incident to a Divorce

sometimes people discuss transfer incident to a divorce in tall buildings in big cities

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Divorcing couples often face the need to split up some retirement account assets.  This can be done from a retirement plan such as a 401(k) or 403(b), or from an IRA.  Depending on which type of account you’re splitting, the rules are very similar but are referred to by different names.  For a qualified retirement plan (401(k) or 403(b) plan), the operative term is Qualified Domestic Relations Order or QDRO (cue-DRO).  For an IRA, the action is known as a transfer incident to a divorce.

We discussed the QDRO in several other articles, so we’ll focus on the transfer incident to a divorce in this article.

Keep reading…

Starting a new job in the middle of the year? Use the part year withholding method to avoid excess tax withheld

part year withholding works for cab drivers too

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When you file your W4 form with a new employer, this instructs the employer how much tax to withhold from your pay, based on a full year’s pay rate.  There is a strategy you can employ that will reduce the amount of tax withheld from your pay – known as the part year withholding method.  This method of tax withholding calculation takes into account that you are only working and earning for a part of the year, so your overall income will be less, and there would be less tax required.

If you start working in the middle of the year (or worse, late in the year) the normal rate of withholding would result in significant over-payment of tax withheld.  The standard tables used to calculate withholding make the assumption on each pay that you are earning at this rate over the entire period.

Keep reading…

Why You Should Participate in a 401(k)

2559353875_e08d93e193_m1We all know that we should save money for a rainy day, a message we’ve received since we were little ones, but this article covers some more reasons why you should participate in a 401(k) plan, if you have one available.

It’s on you

Back in the olden days when the earth was still cooling, employees could count on (or at least thought they could count on) a pension benefit from their employer upon retirement.  This pension plan provided a safety net that allowed the employee to go into retirement with relatively little concern about whether there would be enough money to live on. Keep reading…

Roth 401(k) In-Plan Conversions

As of the beginning of 2013, a new provision became available for participants in 401(k), 403(b) and 457 deferred compensation retirement plans: the Roth 401(k) In-Plan Conversion.  This provision allows current employees participating in one of these Qualified Retirement Plans to convert funds from the traditional 401(k) (or other) account into the Designated Roth Account (DRAC) that is part of the plan.

This is new and different because previously the only way to convert funds from the 401(k) plan to a Roth-like account was to have left employment by the sponsoring employer. Keep reading…

Emergency Fund vs. Credit Card

Credit Card

During moments in our lives we are faced with bad luck or simply things that go awry and inevitably cost us money. From a car needing repairs to the water heater going out, or an unexpected doctor bill we don’t plan for these to happen, but we can in place in case they do.

As financial planners we generally recommend that our clients have emergency funds in the event that such events are going to happen. On different occasions I will get the argument that an emergency fund isn’t necessary if one has a credit card to simply pay for the unplanned expenses when they happen.

Generally, in an emergency a credit card can come in handy as one may not have quick access to cash, etc. However, the flaw with thinking that a credit card can be used in place of an emergency lies here: How do you pay off the credit card?

The point is that the emergency may go away, but the credit card debt remains and the interest compounds not only the money used but the headache of the emergency the card was used to fund. Several emergencies in a small period of time can lead to high credit card debt – which is an emergency itself; only this emergency is preventable.

One thing folks can consider is to utilize both if necessary. In a pinch a credit card can come in handy if an unexpected emergency happens out of town, or as mentioned previously you don’t have immediate access to your emergency fund. The solution lies in once you have access to your emergency fund use that money to pay off the credit card that you just used for the emergency, and work on replenishing your fund.

The Designation Everybody Should Be Aware Of

We will stick together..smile together..be tog...

At some point in your life you have probably started a new job, applied for life insurance, started an IRA or retirement account, or opened a bank account. You may remember when filling out the paperwork that the form asked for a beneficiary – both primary and contingent. This is simply telling the account’s custodian to whom you want your account to go to should you pass away.

Your primary beneficiary is the first (hence the name primary) that receives account balance or death benefit. The contingent is who receives the account balance in the event your primary beneficiary predeceases you. When choosing beneficiaries you had the choice of allocating a certain percentage to the primary and some to the contingent if needed. You may have even had two or more primary beneficiaries that you allocated a certain percent of your account to totaling 100%

Then you may have forgotten about the whole beneficiary thing. Until now.

It’s important to review and if necessary update your beneficiary designations ion your IRAs, 401(k), 403(b), life insurance and other savings and brokerage accounts.  This is especially important if you’ve recently had a divorce, or your primary beneficiary has passed away.

In the divorce example, a couple could have gone through a nasty divorce and perhaps many years have passed and both have remarried. If they haven’t updated their beneficiary designations on their accounts and policies, guess who gets the proceeds? Yep. The ex-spouse.

Some folks think that if they have a will they can forgo naming beneficiaries as their wishes will be carried out through the will – maybe and maybe not. Also, not only is proving a will (called probate) made public, wills can also be contested by family members.

For example, a couple may have family that disagrees with their relationship. If they both have wills, those will could potentially be contested by the family. Any directives in the will allocating money to the surviving partner can be challenged. This can be virtually eliminated by the couple naming each other as beneficiaries on their life insurance and retirement accounts. Now their money passes to the surviving partner by operation of contract – and avoids the publicity of probate.

It never hurts to review your beneficiaries and if necessary update them. It only takes a few minutes to check and that few minutes can save you (and your desired beneficiaries) hours, if not years of hassle, hurt, and financial hardship.

A Quick Trick to Reduce Your Tax Liability

Considering The Tax Shelter

Now that most folks are recovering from tax time there may be some individuals that paid an excessive amount of tax to Uncle Sam and are looking for ways to reduce their tax liability for next year. This post will be short and sweet, but hopefully it will drive a few points home.

The best way to explain this is through an example. Let’s say that Mary and her husband Paul both work and file their taxes jointly. Their tax liability for 2013 was $4,000 – meaning that’s the amount of the check they wrote to the IRS. Needless to say, they are both looking for a potential way to reduce that liability – at least in the here and now. In this case, their marginal tax rate is 25%.

The quick trick in this example is to take their tax rate which is 25% and divide it into their tax liability of $4,000. In this case it turns out to be $16,000. This magic number of $16,000 is what Mary or Paul or both of them combined could contribute to their pre-tax retirement plan such as a 401(k), 403(b), 457, etc. All else being equal, this significantly reduces their tax liability for 2014. The reason why is that the money deferred to their retirement accounts is taken from their paychecks before taxes are taken out, thus they have less money to take home that’s subject to taxation. And in this case – they’re paying themselves first!

Granted, they will eventually have to eventually pay tax on the amounts in their retirement plans, but what they are doing now is reducing their tax liability in the present, and paying for it later. This may work out for the both of them as their tax rate in the future may be lower than their current 25%. It could also work against them if their tax liability happens to be higher when they start taking money from their accounts.

This situation may apply to some folks reading this article. If it does and you have question feel free to contact us, or any competent financial professional.