Tax Planning Implications of the New FAFSA Timing
In case you are not aware, the government has changed the date when you can submit the FAFSA application for financial aid. In the past, the FAFSA was made available on January 1. You completed it using tax data for the year just finished. However, with so many students now applying early decision or early action in the fall, colleges were not able to provide firm financial aid awards along with acceptance decisions. To address this, the government has pushed the FAFSA availability date back to October 1. As a result, the tax data used to...
read moreThe Importance Frank and Open Dialog About Finances Between Aging Parents and Their Children
One of the most difficult conversations for many families to have is between aging parents and their children about end of life issues. This generally requires parents’ opening up about their current financial situation as well as both parents and children dealing with very uncomfortable topics such as death and declining health. But to avoid potential misunderstandings and conflicts down the road, it is almost always better to have these discussions sooner rather than later. I have not been doing advisory work all that long, but I have...
read moreLong Term Care Expenses – Factors to Consider
One of the most important factors you need to consider when putting together a retirement plan is potential long term care expenses. For those not familiar, long term care refers to expenses related to “Activities of Daily Living,” such as eating and bathing, that many eventually need help with as they age. In general, Medicare (the health insurance program for seniors) does not cover these expenses, so it is critical that you think through where the funds would come from. Care can be provided either in your home or in an assisted living or...
read moreWhy It Is Risky to Plan on Being in a Corporate Job Past Age 55
Most of the clients I serve in my financial planning practice are either in the midst of a career transition or planning ahead for one. The transition may be retirement, a second career, or a job transition due to downsizing. As a result, I have spent time over the last couple of years at job networking groups. What has really struck me is that nearly everyone attending these groups are in their fifties and early sixties. Rarely do you encounter anyone in their forties or younger. I have also noticed that the flow of new people attending...
read moreLow Cost Index Funds Are Also Tax Efficient
I am a big fan of investing in low cost index mutual funds instead of more expensive actively managed funds. An index fund simply owns all the stocks or bonds in a particular index (S&P 500, Russell 3000, etc.), whereas an actively managed fund has a fund manager trying to identify winners and losers. Because few active managers are right enough of the time to justify the fees they charge to manage the funds and it is practically impossible to know in advance which fund managers will come out ahead over time, I believe that low cost index...
read moreUsing Roth Conversions to Lower Your Long-Term Tax Rate
If you expect your tax rate this year to be less than what it will be after you are 70½, consider a Roth IRA conversion. You will pay income tax on the funds you convert from a traditional IRA, but it will be at a lower rate than when withdrawals are made later from the traditional IRA as part of a required minimum distribution (RMD). I see this opportunity present itself most often for clients in a job transition, when their income has fallen, and for clients in their 60s who are retired or semi-retired and not yet collecting Social...
read moreThe Value of Integrating Tax and Financial Planning Services
When I first set up my financial planning practice two years ago, I decided to obtain the Enrolled Agent designation from the IRS so that I could offer tax preparation services as a value add for my financial planning clients. What I have come to realize over these last two years is that combining these two services offer more value to my clients than I initially anticipated. In most cases, financial advisors and CPAs (and other tax preparers) operate in isolation. Neither has visibility to what the other is doing. For the most part, when you...
read moreYear End Tax Strategies for Those Who Had a Job Transition
Those who experience a job transition (voluntary or involuntary) often have annual income levels that vary significantly during the transition period. Income fluctuations can be caused by severance payments, accrued vacation payouts, deferred compensation payouts, signing bonuses as well as a reduction in income if a new job is not secured immediately. Due to shifts in tax brackets, this fluctuation in income from one year to the next can create tax planning opportunities that would not exist if income was steady year to year. Those in a job...
read morePaying for Your Health Insurance through COBRA? Consider Switching to an Exchange Plan Before December 15
In my financial planning practice I spend a fair amount of time with people in a job transition. Recently I have spoken with a few people who pay for their health insurance through COBRA, not realizing that they could potentially save hundreds of dollars a month in premiums by obtaining subsidized policies from the government’s health care exchange. You are allowed to purchase a plan on the affordable care act exchange and qualify for a subsidy even if COBRA is available to you. In addition, if you live in a state that has expanded...
read moreWhen Whole Life Insurance Makes Sense
Whole life insurance has received a bad rap in recent years. Some insurance agents may try to sell it to younger couples with children who are better served with low-cost term life insurance. And some people plan to withdraw the funds while living and face negative tax consequences or high loan interest rates. But in certain situations a whole life policy can make sense, particularly as a tax efficient way to accumulate a fund to pass onto heirs with the added benefit of protecting against the loss of a second social security benefit stream....
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