Essentials for Your Year-End Financial Checklist

The year-end deadline for many key financial decisions is approaching. Check your finances now to avoid unpleasant surprises.

December 31 marks the deadline for decisions that can significantly affect your wealth. Taking action now might enable you to reduce your taxes and increase your retirement savings. It’s also a great time to review your entire wealth plan with a professional financial advisor.

Take tax losses on your positions. Your investment portfolio probably has one or more poor performers. You may wish to sell losing positions to realize the losses and offset them against your capital gains. You can deduct up to $3,000 of excess capital losses against your ordinary income. Reevaluate and rebalance your holdings to achieve your desired asset allocations.

Fund your retirement accounts. Although you have until April 15 of next year to fund your retirement accounts, now is the time to determine your remaining contributions to your 401(k) plan and Individual Retirement Accounts (IRA). If your income exceeds Roth IRA limits, consider a partial conversion of traditional IRA assets to a Roth IRA*. Also, don’t forget to take any required minimum distributions if you’ve reached age 701/2.

Review your flexible spending accounts. It’s a good time to review your health insurance coverage with your financial advisor and insurance agent. Make sure you don’t let your flexible spending account (FSA) balance exceed $500, the maximum amount you can carry forward into the next year. Some employers offer a grace period until March 15 to use last year’s funds. However, you can only use one of these options. You should check with your employer to see what their policy is.1

Review your beneficiary designations. Circumstances might have changed during the year, prompting changes to the designated beneficiaries in your will, trusts, retirement plans, insurance policies, and charitable gift plans. Review your estate plan to evaluate moving assets to new or existing trusts. Finalize your gifting to family and friends based on the latest gift tax limits. Review your insurance policies to determine if the coverage is still appropriate.

Year-end financial reviews are essential. Contact me today to schedule a review session that will help you find opportunities to manage your tax burden, control your bequests, and start planning your financial goals for the new year.

* Traditional IRA account owners should consider the tax ramifications, age and income restrictions in regards to executing a conversion from a Traditional IRA to a Roth IRA. The converted amount is generally subject to income taxation.

1, “Plan now to Use Health Flexible Spending Arrangements in 2018; Contribute up to $2,650; $500 Carryover Option Available to Many” 11/15/17

Is a SEP-IRA Right for Your Business?

If you’re like many small business owners, running your own business is an all-consuming endeavor.

In the face of everyday demands, choosing a retirement plan for your business can become a casualty. The idea of establishing a plan could evoke worries about complicated reporting and administration.

If this sounds familiar, then you may want to consider whether a Simplified Employee Pension (SEP) may be right for you.

A SEP can be established by sole proprietors, partnerships, and corporations, including S corporations.

The advantages of the SEP begin with the flexibility to vary employer contributions each year from 0% up to a maximum of 25% of compensation, with a maximum dollar contribution of $53,000 in 2016.

Employees Vested

The percentage you contribute must be the same for all eligible employees. Eligible employees are those age 21 or older who have worked for you in three of the last five years and have earned at least $600 (in 2016). Employees are immediately 100% vested in all contributions.

There are no plan filings with the IRS, making administration simple and low cost. You only need to complete Form 5305 SEP and retain it for your own records. This form should be provided to all employees as they become eligible for participation.

Unlike other plans, a SEP may be established as late as the due date (including extensions) of your business’ tax filing (generally April 15th) for making contributions for the prior year.

A Menu of Options

Each eligible employee will be asked to establish his or her own SEP-IRA account and self-direct the investments within the account, relieving you of choosing a menu of investment options for the plan.The rules for accessing these funds are the same as those governing regular IRAs.

Distributions from SEP-IRA and traditional IRAs are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty. Generally, once you reach age 70½, you must begin taking required minimum distributions.¹

Unlike the self-employed 401(k), which is only available to business owners with no employees, you cannot take a loan from your SEP assets. Distributions from 401(k) plans are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty. Generally, once you reach age 70½, you must begin taking required minimum distributions.¹

The SEP earns the “simplified” in its name and stands as an attractive choice for business owners looking to maximize contributions while minimizing their administrative responsibilities.



1. IRAs have exceptions to avoid the 10% withdrawal penalty, including death and disability.

It’s Not Always a Good Idea to Rollover Company Stock


It’s not always a good idea to rollover company stock from a 401(k) plan to an IRA. In fact, doing so might mean you pay more in taxes to Uncle Sam than necessary.

If company stock held in an employer-sponsored 401(k) plan has appreciated, the difference between the amount paid for shares (the cost basis) and the current value of those shares is known as net unrealized appreciation (NUA). For instance, if an investor paid $10 a share for 1000 shares ($10,000) for stock that is now worth $15 a share, then the investment is worth $15,000, and the NUA is $5,000.

If the shareholder completes a rollover from a 401(k) plan to an IRA, those shares of company stock will be liquidated, along with the other assets in the account, and moved to an IRA where the assets will have an opportunity to continue growing tax-deferred. When the assets are distributed from the IRA, they may be taxed as ordinary income. If the investor is in the 28 percent tax bracket, the taxes owed would be about $4,200.

There is an alternative that could be a better choice tax-wise. An investor can request company stock be distributed in-kind and sent to a taxable account. The stock is not liquidated. The shares are moved to the new account. The investor may owe ordinary income taxes (and penalties if he or she is not yet age 59½) on the cost basis ($10,000). However, the net unrealized appreciation ($5,000) will not be taxed until the shares are sold. Taxes on the cost basis would be about $2,800.

If the investor takes a distribution right away, and the shares have been held for more than one year, the proceeds may be taxed at the long-term capital gains tax rate, which is currently lower than the ordinary income tax rate. If the investor is in the 15 percent capital gains tax bracket, another $750 would be owed in taxes. In this example, the investor could save about $650 in taxes overall.

Please keep in mind this is a hypothetical example and is not representative of any specific situation. Each investor is unique and your results may vary. Executing an NUA strategy seems pretty straightforward, but it can be tricky and not everyone is eligible. If you would like to learn more, please give your tax professional a call.

12 Ways to Get the Most Out of Social Security

© Monkey Business Images/shutterstock
© Monkey Business Images/shutterstock

Social Security payments are the primary source of income for many retirees. Nearly one-third of respondents to a 2013 survey by the Federal Reserve Board indicated that they had no retirement savings. Whether Social Security will be your sole means of support or a source of pocket change, it’s a good idea to strategize how to get the most out of your benefits — before you hit retirement age.


Throughout your working years, the Federal Insurance Contributions Act (FICA, as it appears on your pay stub) taxes part of your wages that count as credit toward Social Security. The Social Security Administration determines your monthly benefits based on how much you earned during your 35 highest grossing years before you file a claim. The calculation also factors in your age and the number of years you worked. The result is known as the primary insurance amount, or PIA. Check the official online estimator to see how these numbers work out for you.


In a recent survey by MassMutual Life Insurance Company, more than 70 percent of respondents incorrectly assumed the retirement age was 65. Full retirement age is 66 for people born between 1943 and 1954 and rises incrementally to 67 for those born in 1960 and after. Although you can start collecting Social Security benefits when you turn 62, the amount of your monthly payment is reduced permanently by 25 percent.


The maximum payout at full retirement age is $2,663 a month in 2015. But most financial planning experts recommend waiting even longer to start receiving benefits. For each year you hold off beyond 66 or 67 up to the maximum age of 70, the size of your monthly payment increases 8 percent. Once the benefit stream starts flowing, regardless of your age, there is no turning back; you cannot change your mind.


The first Social Security payout is the base line for what you will receive every month thereafter. Each October, the Social Security Administration calculates a cost of living adjustment, based on changes in the federal consumer price index, and increases your monthly benefit accordingly for the following year. In 2015, the adjustment amounted to 1.7 percent. When you delay Social Security payments beyond the minimum retirement age of 62, the cost of living adjustments you “missed” are factored into the benefit you ultimately receive.


The decision to stop working is, of course, a very personal one. There are many factors to consider when assessing the right time to push “go” on Social Security, including the question with an unknowable answer: How long will you live? Although waiting longer to collect benefits increases the monthly payout, it may not make sense for you. If your health is poor, it may be more prudent to start receiving Social Security now. And if you find yourself in financial straits once you hit retirement age, collecting a smaller benefit for a longer period might be the wiser (and necessary) choice.


It’s possible to retire at 62, delay collecting Social Security, and still maximize your financial situation. Depending on the size and nature of your retirement savings, you could draw on investments, particularly those made through a tax-deferred account such as a traditional IRA or 401(k), until Social Security checks start flowing. Research by a consulting firm that partners with Kiplinger suggests that waiting on Social Security could be more beneficial than limiting withdrawals from a private retirement account. That is, you would wind up with a larger Social Security benefit and likely extend the longevity of your retirement account. This is a very complicated calculation that depends in part on the type of investments you have and is best discussed with a financial planning professional.


You can keep your job after hitting age 62 and still collect Social Security, but there is a penalty for doing so. Until you reach full retirement age, the Social Security Administration (SSA) will deduct $1 from your benefit for every $2 you earn above $15,720. If you are working the year you reach full retirement age (66 or 67), SSA will deduct $1 for every $3 earned above $41,880 before your birth month. These deductions are temporary; when you stop working, the SSA will recalculate your benefit based on earnings and the benefits withheld. If you work beyond full retirement age, you can collect the full benefit regardless how much you earn.


Being married has its advantages as far as Social Security is concerned. When one spouse files for benefits, the other may collect up to half that amount, assuming both spouses are at least 62. This is a boon to couples where one spouse didn’t earn any credits toward Social Security or earned significantly less than the other. For example, if a husband and wife retire at 66 with full retirement benefits — she at $1,500 a month and he at $600 a month — he can file for spousal benefits worth $750 instead of his own Social Security. Meanwhile, the value of his benefits continue to increase until age 70; at that point, he will receive the greater of the two. Note that spousal benefits are reduced for people younger than full retirement age.


This tactic for maximizing spousal benefits pays off most when one half of the couple has reached full retirement age with accrued earnings that exceed those of the other spouse. The high-income earner can file for Social Security and immediately suspend the benefits flow. The lower-earning spouse, who must be at least 62, can then file for spousal benefits while the value of the higher earner’s benefits continue to grow until he or she reinstates the claim (ideally at age 70).


A surviving spouse at least 60 years old can collect a percentage of a deceased spouse’s benefit. By waiting until full retirement age, the surviving spouse would receive a higher benefit — up to 100 percent of the deceased’s benefit, depending how old the deceased was when Social Security payments started. Survivor benefits are available even if the deceased was not yet receiving checks from the Social Security Administration. If both spouses are retired and collecting Social Security, the higher benefit is the one that endures regardless which half of the couple lives longest.


Once Social Security benefits kick in, recipients with income over certain thresholds must pay the tax man. (Income here includes variables such as wages, capital gains, dividends and interest payments, payouts from retirement accounts, and one-half of Social Security benefits.) A married couple with income between $32,000 and $44,000 owes taxes on up to half the value of their Social Security benefits. Income exceeding $44,000 incurs taxes up to 85 percent of the annual benefit. For single recipients, the outside income thresholds are $25,000 and $34,000.


Consider working with a financial planner who knows the ins and outs of the system to customize a plan for you. Barring that, free online tools from the likes of AARP and T. Rowe Price, an investment management firm, can help you optimize your Social Security benefits.
Written by Elizabeth Sheer of Cheapism
(Source: Cheapism)

15 Ways to Retire Earlier

© Provided by GoBankingRates
© Provided by GoBankingRates

The word “retirement” and number “65” are as linked in the American psyche as “bacon” and “eggs.” Then again, that all depends on how fast you want your eggs, right?

Retiring early — or leaving the work force for the golf course, if you like — might sound like an unattainable goal. But there are many ways to make it, so long as you take numerous approaches into account.

Yes, 65 is the standard — but what’s 21st century life all about if not exceeding standards? Here are 15 major financial and lifestyle moves you can make to achieve this goal.

Are you fantasizing about early retirement. Here’s how to make that dream a reality.


Sorry, folks: Simply skipping that $4 latte in the morning ain’t gonna cut it. It takes a much more committed approach where “sacrifices” are viewed in a new light. “It’s amazing when I work through the numbers that some people think manicures, landscapers and maids are a need,” said Michael Chadwick, a certified financial planner and CEO of Chadwick Financial Advisors in Unionville, Conn.


Less spending later constitutes the flip side of less spending now. If you imagine comfy retirement as a vacation home and monthly cruise ship trips, revisit that vision so you don’t have to bleed cash — but can still retire in style. Instead of two homes, for example, why not live in your vacation destination and pocket the principal from selling your primary residence?


That’s right, all of it. First: Is it time to pay off your home? You might not have the resources now to plunk down one huge check, but consider savvy alternatives such as switching from a 30-year to 15-year mortgage. Monthly payments aren’t much higher, but the principal payoff is much greater. Second: Do the same with loans and credit cards, as high interest eats up income faster than termites chewing a log. A credit card balance of just $15,000 with an APR of 19.99 percent will take you five years to eradicate at $400 a month — and you’ll dish out a total of $23,764.48, the calculator on shows.


While it’s risky to count on unknowns such as an inheritance, you might have cash streams available outside the traditional retirement realm, said Jennifer E. Acuff, wealth advisor with TrueWealth Management in Atlanta. For example, “Understand your options with respect to any pensions you might be entitled to from current or previous employers.”


If you’re in your 20s and start investing now, you’re in luck, said Joseph Jennings Jr., investment director for PNC Wealth Management in Baltimore. “Due to the power of compounding, the first dollar saved is the most important, as it has the most growth potential over time.” As an example, Jennings compares $10,000 saved at age 25 versus 60. “The 25-year-old has 40 years of growth potential at the average retirement age of 65, whereas $10,000 saved at age 60 only has five years of growth potential.”


The wisdom of taking advantage of a company match on the 401(k) is well established — but think about how that power is accelerated if a working couple does it with two such company matches. “If your employer has a matching contribution inside of your company’s plan, make sure you always contribute at least enough to receive it,” said Kevin J. Meehan, regional president-Chicago with Wealth Enhancement Group. “You are essentially leaving money on the table if you don’t.”


The methodology is simple, yet the results can be profound: Put money at least monthly into systematic investments during your working years. “There’s no other element of investment planning or portfolio management that’s more essential over the long term,” said Jesse Mackey, chief investment officer of 4Thought Financial Group in Syosset, N.Y.


How about some free money? The ESPP typically works by payroll deduction, with the company converting the money into shares every six months at a 15 percent discount. If you immediately liquidate those shares every time they’re delivered, it’s like get a guaranteed 15 percent rate of return,” said Dave Yeske, managing director at the wealth management firm Yeske Buie and director of the financial planning program at Golden Gate University. “Add the after-tax proceeds to your supplemental retirement savings.”


That is, the earlier the better. Millennials who kick off retirement accounts early will reap big rewards later. A 25-year-old who socks away $4,000 a year for just 10 years (with a 10 percent annual return rate) will accrue more than $883,000 by the time she turns 60. Now then: Can’t you just taste those pina coladas on the beach?


There’s no sense in depriving yourself of every single thing, especially well-deserved time off. But Yeske points out that you can save a ton in 150 countries through a service called “My wife and I have stayed for free in London, Amsterdam, New York and Costa Rica,” he said. “And when you’re staying in someone’s home or apartment, you don’t have to eat out at a restaurant for every meal, so your food costs nothing more than if you were at home.”


To get to an early retirement, you have to periodically revisit your IRA, 401(k) or other retirement account to make sure your money doesn’t grow cobwebs. For example, the way your retirement account is diversified shouldn’t put too much emphasis on low-yield investments — such as money market funds and low-yielding bonds. “Dividends can pile up in the money market account, typically earning one one-hundredth of a percent,” Yeske said. “Make sure your cash is invested properly.”


In this curse of consumerism, you buy something expensive, feel excited and then scout for something else to purchase when the “new car smell” wears off. And it’s a huge trap if you want early retirement, said Pete, a finance blogger who retired in his 30s. Another advantage: “Here in the rich world,” he wrote at, “the only widespread form of slavery is the economic type.”


Early retirement doesn’t necessarily mean retiring all of your income, especially if you find ways to bring in money without hard work. Investing in rental properties is one way you can create a cash flow stream — and you can minimize the labor by hiring a property manager. Or: Set up an internet sales business and hire a part-timer to fulfill orders and track stock based on volume.


Here’s an alternative way to get to “At ease, men.” By serving in the military, you can also serve yourself. Members commonly retire after 20 years, living off generous pensions and health insurance. Even though President Obama in March proposed sweeping changes to military retirement and health benefits, earlier-than-normal retirement should still remain an option for many men and women in uniform.


Some middle agers are selling the bulk of their possessions — including the home — and moving into tricked-out mobile homes and houseboats. These options also open the door to a life of leisure travel and can eliminate major expenses, such as property taxes and mortgage payments.

If you think of retiring early as simply walking away from everyday life — and thus a pipe dream — it’s time to take a step back and look at how others have done it. You might enjoy your job immensely and have friends in the trenches with you. But if work is taking too much away from your family time, community bonds, overall health and peace of mind, you might do well to consider one of the smartest alternative investments of all: yourself.

Written by Lou Carlozo of GoBankingRates

(Source: GoBankingRates)

The Best Ways to Invest $5,000

You’ve padded your emergency fund, paid off your debt and saved up a few thousand dollars – $5,000 to be exact – that you’re ready to invest. But is it best to put it in a mutual fund, certificate of deposit, index fund or exchange-traded fund?

“If you’re asking what’s the best way to invest $5,000, it’s kind of like asking what should I have for dinner tonight? Well, it depends,” says Greg McBride, chief financial analyst of Bankrate. “What do you like? What don’t you like? Do you have any allergies? What are you in the mood for? The same thing [applies] here.”

Before you get to specifics, such as how much risk you can stomach or what to choose off the menu of investments, start with the basics.

“The first question you need to ask yourself is, ‘When do I need to spend that money?’” says Manisha Thakor, founder and CEO of MoneyZen Wealth Management. “My rule of thumb is investing is something you do for the long run, which I would define as a minimum of five years and ideally 10-plus years. Once you are sure it’s long-term money, now you’re ready to really get into the nuts and bolts.”

To help you delve into those nuts and bolts, we asked financial experts for advice on the best way to invest your $5,000. They suggested options for both the short and long term, if you’re hoping to grow that money for retirement decades down the road.

1. Short term

A man working on his laptop.

© Mark David/Getty Images A man working on his laptop.

Online savings account. The best place for money you need in a moment’s notice is an online savings account, McBride says. Even though interest rates for online savings accounts are low – hovering around 1 percent – they “pay the best returns relative to the savings account offers among all the financial institutions,” he says. The returns currentlycompare to those of CDs, but without the early withdrawal penalties.

CDs and money market accounts. If your time horizon is less than five years, Thakor recommends putting the money in a CD with a maturity date that matches your goal. This option may be ideal if you have a low risk tolerance, since CDs are insured by the Federal Deposit Insurance Corp. up to $250,000 per depositor. The downside? You can’t touch those dollars for a predetermined time without paying a penalty.

Alternatively, money market accounts, which are also insured by the FDIC, earn slightly less interest than CDs, but you can withdraw the money at any point. Just keep in mind that interest rates are generally inversely correlated with access to your money. As Thakor puts it: “If you want unlimited access to your money, you’ll get slightly lower rates. If you don’t mind tying it up for a defined period of time, which is what you do with a CD, then you can get a slightly higher rate.”

Given their low yields, CDs and money market accounts are better for shorter-term investments, since they don’t always keep up with the cost of inflation. “Even though on paper it might look like you’re protecting your principal and [your] deposit is growing a little bit in value, you’re actually losing ground because the purchasing power is not holding,” says Paul Granucci, a financial solutions advisor with Merrill Edge.

2. Long term

A trader works on the floor of the New York Stock Exchange.

© Spencer Platt/Getty Images A trader works on the floor of the New York Stock Exchange.

Actively managed mutual funds. Investors with a longer time horizon can afford to take on more risk for a greater return by putting their money in the stock market. Mutual funds offer an easy way for investors to gain exposure to a broad range of stocks. If picking stocks makes you nervous, fear not. With actively managed funds, a fund manager makes all the decisions for you, including what sectors of the economy to invest in and which companies are undervalued or poised for growth. But beware: Mutual funds come with fees. The average actively managed stock fund charges an annual fee of 1.26 percent, according to fund tracker Morningstar, and Thakor advises against buying mutual funds with an expense ratio of more than 1 percent.

If you do go the actively managed route, Granucci recommends a globally balanced mutual fund, which is diversified in stocks, bonds and cash and contains domestic and international investments.

Index funds. “If the goal is to try to achieve a lot of diversification and build a portfolio that you can more or less kind of set and forget, it’s hard to beat index funds,” says Christine Benz, director of personal finance for Morningstar.

With index funds, you don’t have the opportunity to beat the market, but you can keep up with the market, “which is not a bad place to be given that most active fund managers do not outperform their benchmarks over long periods of time,” Benz adds.

Thakor points out that index funds are the healthiest option on the menu – without organic food prices. “Index funds are the financial equivalent of a superfood like chia seeds or kale,” she says. “Depending on what type you pick … you can get exposure to literally thousands of stock and bond issues at a very nominal fee.” The average expense ratio for stock index funds is 0.75 percent, according to Morningstar.

ETFs. Mutual funds and ETFs are very similar. “When you buy one share of an ETF or one share of a mutual fund, you’re buying a small piece of a lot of different investments that make up that fund,” Granucci explains. “The difference is how they are managed.”

There’s no active management with ETFs, so if you’re thinking about investing in a handful, be prepared to rebalance your portfolio at least once a year (mutual fund portfolios should be rebalanced, too). Advantages include costs that are a lot lower than those of mutual funds (Morningstar reports ETFs have an average annual fee of 0.57 percent) and no minimum investment requirements. While mutual funds may demand initial investments of $1,000 or $3,000, ETFs – which are traded on exchanges and fluctuate in price during the day – cost only their current trading price, like stocks.

ETFs offer exposure to asset classes ranging from bonds to domestic and international stocks, and even alternative investments like commodities. “Instead of trying to do one fund that’s going to do it all, you might need to find three or four ETFs that are going to fill all the different buckets that you want to hit,” Granucci says.

3. Before diving in

A man holds a credit card.

© Johnnie Davis/Getty Images A man holds a credit card.

You might be ready to put that $5,000 to work, but before you settle on one of the above investments, McBride points out three places where your money would be better spent:

1. Paying down high-interest debt.

2. Saving for retirement in a tax-advantaged account, such as a 401(k) or individual retirement account.

3. Starting an emergency savings fund that covers six months of living expenses.

“For the vast majority of Americans, tackling those three priorities is going to more than chew up that $5,000,” he says.

And there’s a reason why paying debt is at the top of the list: You’ll get a higher risk-free rate of return by paying down credit card debt than you will investing in financial securities. As McBride says, “Paying off a 15 percent credit card balance is like earning 15 percent risk-free.”

But let’s assume you’ve paid off your debt, contribute to a 401(k) or IRA and have enough savings for a rainy day. Now you’re ready to sit down at the table. The experts might have different tastes, but they all agree on one thing: You have to know what you’re ordering.

In other words, if you don’t understand what you’re investing in, you might make some mistakes.

“The power of investing comes from compounded returns and time, and if you don’t understand what you’re doing and you’re afraid to ask questions, when the inevitable hiccup comes in the market,” Thakor says, “you will be more likely to change your course.”

Copyright 2015 U.S. News & World Report

Written by Stephanie Sternberg of U.S. News & World Report

(Source: U.S. News & World Report)

3 Smart Ways Senior Citizens Can Save Money

© Getty Images
© Getty Images

If you’re a senior citizen, one of your primary financial goals should be to make sure the money you’ve saved lasts as long as you do. Of course, the most obvious ways to do this are to save as much as possible before you retire, and to use the money from your nest egg wisely. With that in mind, here are three smart ways you may be able to lower your expenses in retirement, and make your savings last as long as possible.

Take advantage of senior discounts

Don’t be afraid to ask for a senior discount when you’re out shopping or dining. Many establishments offer senior discounts, and not all of them are advertised.

Just as a reference, according to, there are about 100 restaurant, retail, and grocery store chains that offer senior discounts, and some are quite generous. To name just a few, seniors are entitled to

  • 15% off at Belk on the first Tuesday of each month
  • 20% off at Rite Aid on the first Wednesday of each month
  • 10% off at Chick-Fil-A, or a free drink or coffee
  • 10% off at Wendy’s
  • 5% off at Kroger one day per week

Finally, keep in mind that this just refers to the discounts offered by large chains. Thousands of local and regional businesses offer senior discounts as well. Many are offered to people as young as 55. So, whether or not you consider yourself to be a “senior citizen” just yet, those 10% and 15% discounts can add up to hundreds or even thousands in savings each year.


You can join AARP as early as age 50 at a cost of just $16 per year, and your membership can pay for itself many times over. For starters, many businesses offer additional discounts to AARP members beyond what is discussed above, such as 25% off at Papa John’s and 20% off at Denny’s.

Many travel discounts are available, such as 15% off from Starwood Hotels and Resorts and 5% off from Norwegian Cruise Lines. In addition, AARP runs its own travel center in partnership with Expedia, where members can enjoy discounted rental cars, flights, and hotel rooms that aren’t available to the general public.

AARP members are entitled to other potentially money-saving resources including:

  • Free tax help — the AARP Foundation’s Tax Aide helps 2.6 million taxpayers with their returns each year
  • Financial planning and estate planning resources
  • Free webinars covering topics such as Social Security and Medicare
  • Member-exclusive insurance programs offered through companies such as The Hartford and New York Life

Spend your money wisely

One of the smartest ways seniors can save money is with some responsible tax planning. Specifically, many seniors have their retirement savings spread among several different types of accounts, and the order in which you tap into these can make a big difference.

Any money you have saved in a traditional (taxable) brokerage account should be the first place you turn to withdraw money to meet your expenses. Tax-advantaged accounts like 401(k)s and IRAs should be left alone for as long as possible in order to take advantage of tax-free compounding (you don’t pay capital gains or dividend taxes each year in these accounts).

Once your taxable accounts are exhausted, then and only then does it make sense to tap into retirement accounts. First to go should be your tax-advantaged accounts, such as traditional IRAs and 401(k)s. These have required minimum distributions beginning when you are 70 1/2 years old, and your withdrawals are taxable, so it makes sense to use these next.

Finally, any money you were wise enough to save in Roth accounts should be used last. Roth accounts have no RMD requirements, and all withdrawals after age 59 1/2 are tax-free. So, it makes sense to take advantage of the tax-free growth in your Roth IRA for as long as possible.

The point here is that order matters when it comes to your retirement savings. If you’ve saved money in several account types, by tapping into your savings in a strategic manner, you can save yourself thousands of dollars in taxes over the course of your retirement.

Written by Matthew Frankel of The Motley Fool

(Source: The Motley Fool)

Should You Have Gold in Your IRA?

© Mike Segar/Reuters
© Mike Segar/Reuters

It’s not unreasonable that some IRA owners may have bad feelings about the stock market.

However the safest fixed-income investments are currently paying microscopic interest rates even though the risk of future inflation remains worrisome. So the idea of investing some IRA money in gold or other precious metals might seem attractive. Here’s the story on what you can and cannot do with your IRA.

Physical IRA ownership of precious metal coins and bullion

Our beloved Internal Revenue Code allows IRAs to own certain gold, silver, and platinum coins and gold, silver, platinum, and palladium bullion that meets certain fineness standards. For example, an IRA can own American Gold Eagle coins, Canadian Gold Maple Leaf coins, American Silver Eagle coins, American Platinum Eagle coins, and gold and silver bars (bullion) that are 99.9% pure or better.

However, some well-known gold coins, including the South African Krugerrand, are off limits as are bullion bars that are not sufficiently pure. The coins or bullion must be held by the IRA trustee rather than the IRA owner. In other words, you can’t have your IRA buy coins or bullion and then stash the stuff in your safe deposit box or bury it in your backyard. Sorry about that. These tax rules apply equally to traditional IRAs, Roth IRAs, simplified employee pension (SEP) accounts, and SIMPLE-IRAs. No problems so far.

The big issue with IRA ownership of precious metal assets is finding a trustee that is willing to set up a self-directed IRA, handle the transfer of funds to the precious metals dealer, and facilitate the physical transfer and storage of the purchased coins or bullion. Only a relatively few outfits are in the game, and none of the major brokerage firms are willing to play. Conduct an Internet search to find a trustee. Most trustees will arrange for the physical storage of coins and bullion with the Delaware Depository Service Company in Wilmington, Del.

A precious metals IRA trustee will usually charge a one-time account set-up fee (maybe $50), an annual account administrative or maintenance fee for sending account statements and so forth (maybe $150 or an amount based on the account value), and an annual fee for storage and insurance (maybe $125-$250 or an amount based on the value of the stored assets). Additional fees may be charged for transactions including contributions, distributions, and precious metal purchases and sales.

Age-related considerations

Since precious metal prices are volatile, using an IRA to invest in precious metal assets becomes (arguably) more problematic as retirement age is approached and reached. Also, once you reach age 70½, annual required minimum distributions (RMDs) must be taken from traditional IRAs. Therefore, your traditional IRAs (including any SEP-IRAs and SIMPLE IRAs) must have sufficient liquidity to allow for RMDs. That said, RMDs need not be taken from each IRA. The only requirement is that the proper total annual amount (at least) be withdrawn from one or more accounts. For example, you could have one IRA that is invested in precious metal bullion and one IRA that is invested in liquid assets like publicly traded stocks and mutual funds. The entire annual RMD amount can be taken from the liquid account while leaving the precious metal account untouched.

Indirect precious metal investments via ETFs and mining stocks

Due to concerns about transfers and storage, physical ownership of precious metal assets by IRAs is not for everyone, although it has become more popular in recent years.

One option for folks who are uncomfortable with the idea of physical IRA ownership of coins or bullion is buying shares of an exchange traded fund (ETF) that tracks the value of particular precious metal. A few years ago, tax advisers worried that having your IRA buy such shares might be treated for tax purposes as buying collectibles (coins and metals are generally treated as collectibles under the tax law). Since IRAs are not allowed to own collectibles, that would have resulted in a deemed taxable distribution from the IRA with you then using the money to buy the prohibited EFT shares. Not good.

Thankfully, the IRS has ruled that IRAs can buy shares in precious metal ETFs that are organized as grantor trusts without any tax problems.

The two most-popular precious metal EFTs are the SPDR Gold Trust (trading symbol GLD) and the iShares Silver Trust (trading symbol SLV). The IRS has approved them both. If you have doubts about your IRA being allowed to own a particular precious metal ETF, read the tax section of the fund’s prospectus, which should be available online. (Be aware that there are still some folks out there who wrongly believe that IRAs are not allowed to own precious metal ETFs.)

Another indirect way of investing in precious metals is to have your IRA by stock in a mining company. For example, your IRA could buy shares in Barrick Gold Corp.  , the world’s largest pure gold mining company. There are no tax concerns with this option, because IRAs are allowed to invest in stocks of all kinds.

Written by Bill Bischoff of MarketWatch

(Source: MarketWatch)

Self-Employed? Top Ways to Save for Retirement

© Provided by CNBC
© Provided by CNBC

At the end of a long career, most corporate employees can expect some sort of sendoff—perhaps a Costco sheet cake in the conference room as their colleagues gather around for several rounds of “For (S)He’s a Jolly Good Fellow.”

When you call yourself boss, though, retiring is a lonelier affair, as is saving for retirement.

Of the almost 15 million Americans who are self-employed, 28 percent don’t save for retirement at all, compared to just 10 percent of people who are working in traditional jobs, according to a TDAmeritrade survey.

“It’s the nature of entrepreneurs to think they’ll never retire or they’ll sell their business and that will be their retirement plan,” said CPA Lisa Featherngill, a certified financial planner and managing director with Abbot Downing.

You might need less lofty retirement-planning expectations.

The good news is that there are lots of options. The bad news is that none of them offer an employer match or even a glossy brochure explaining it all to you.

Everything is up to you.

“You have to do all the work of an employee and an employer,” said Andrew Meadows, consumer and brand ambassador of Ubiquity Retirement + Savings, an Internet-based flat-fee-for-service retirement plan provider for small-business owners.

The challenge is wading through all the retirement plan options and deciding which one is right for you.

“Actually, self-employed individuals have a lot of choices around retirement and can often save more than employed people,” Featherngill said.

If you’re just starting out on your self-employed journey and still not earning much, don’t overlook an individual retirement account. IRAs are available in traditional and Roth versions.

The traditional, tax-deductible version allows you to deduct all your contributions from your current year’s income, possibly lowering your tax bracket. You will owe income taxes on withdrawals after age 59½. Withdrawals prior to that age incur income tax plus a 10 percent penalty.

Roth IRAs allow you to contribute the same amount, but with after-tax money. No tax is owed on withdrawals. You can withdraw any of your contribution tax-free since you’ve already paid the tax prior to 59½, but not earnings.

In 2015 the maximum you can contribute is $5,500 (those 50 and older can kick in an additional $1,000).

You can make your contributions for the previous year as late as October of this year if you file for an extension of your taxes.

While IRAs are a good start, you’ll need something more powerful if you hope to have a sizable retirement kitty. Financial experts recommend contributions of 10 percent to 15 percent of your salary, and in many cases the small contribution limits of an IRA won’t get you there.

If your company has fewer than 100 employees, you can set up a Savings Investment Match Plan for Employees. The contribution limits are higher than an IRA—$12,500, plus an additional $3,000 if you’re over 50.

“It’s basically an IRA that’s turbo-charged,” Featherngill said. “And it’s really easy to set up.”

Because it’s an employer plan, if you take this route for yourself, you’re obligated to contribute for any employees, too. SIMPLE IRAs require an employer to make contributions of 3 percent of salary on behalf of employees, regardless of whether the employee makes a contribution.

Like other IRAs, you pay a penalty of 10 percent for taking your money out before age 59½. The SIMPLE IRA takes it up a notch. Any distributions from the account within two years of setting it up incur a 25 percent penalty.

Like other IRAs, Simplified Employee Pension (SEP) IRAs are easy to set up and fund. They have more generous contribution limits, up to $53,000 or 25 percent of your profit, whichever is less. (If you are unincorporated, only 20 percent is allowable.) You can even contribute to a SEP if you have a traditional job and are covered by a workplace plan but still have self-employed income.

“It’s very low cost to maintain, and you can scale it up depending on how much profit you have,” said CPA Armando Roman, a financial planner and wealth manager with Axiom Financial Advisory Group.

Like an IRA, you may fund the plan up to Oct. 15 for the previous year if you file an extension for your taxes.

If you have employees, however, you must fund their retirement accounts at the same percentage as your own contribution—so no giving yourself a bigger cut.

The individual or solo 401(k) plan lets you sock away much greater amounts for retirement at a smaller salary base. It has two parts: One is the employee salary deferral. The other is an employer profit-sharing contribution. Since self-employed people are both employer and employee, they’re eligible for both parts.

In 2015 you can park up to $18,000 (plus $6,000 if you’re 50 and older) in addition to 20 percent of your compensation, up to a total limit of $53,000 (or $59,000 if you’re over 50).

Let’s say you earn $150,000 and are over 50. You can contribute $24,000 through the salary deferral portion. Then you can set aside 20 percent (or 25 percent if you are incorporated) of your salary minus your 401(k) contributions and self-employment tax, which amounts to about $8,900. In this example, you would be able to contribute a total of about $47,000.

“If you’re self-employed and have no employees, I really like the solo [IRA] because it’s flexible,” said Alex Mojica, a wealth management strategist with Zions Bancorporation.

What’s more, solo 401(k) plans have loan provisions if your plan provider allows them. “It’s never advised to take a loan from your 401(k), because it can hamper the growth [of your money,]” Mojica said. “But it might provide someone with peace of mind that they can access their money if they need it.”

Like other 401(k) plans, the solo versions are governed by the Department of Labor, so there’s more paperwork in setting them up and more oversight, said Meadows of Ubiquity.

“All that compliance is your responsibility,” he said.

Written by Ilana Polyak of CNBC

(Source: CNBC)

10 Blunders Investors Make with their Money

No investor is perfect, but hanging onto an imperfection a bit too long can add up to the point where it wrecks a portfolio, cuts a hole in your wallet or costs you a ton of money somewhere down the line.

Here’s the rub: How do you know you’ve made a mistake when you had no idea you were chasing your tail in the first place? Ignorance is one thing; smart investing requires a never-ending cycle of learning. But blissful ignorance is quite another.

“The absolute worst money mistake is sticking your head in the sand,” says Cary Guffey, a financial advisor with PNC Wealth Management. “Whatever the issue you are dealing with, the problem will not simply go away. The very first thing you have to do is confront and admit you have an issue. Until this happens, your situation will not improve.”

Here are 10 common gaffes investors make – some emotional, some behavioral, but all avoidable.

1. Chasing a stock, no matter the price.

© Hiroshi Watanabe/Getty Images

It’s too easy to get intoxicated by a growth industry or sizzling stock. “Ben Graham’s famous quote [that] short term, the market is a voting machine but long term, a weighing machine, is still applicable,” says Yale Bock, founder and president of YH&C Investments in Las Vegas and manager of two portfolios on Covestor, an online investment management platform. Highflying growth companies “are always part of the investment landscape, but the potential for severe capital losses increases if those companies fail to continue growing their revenues, cash flow and profits,” he says.

2. Not keeping your emotions in check.

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Nothing hurts an investor quite like irrational feelings that override rational choices. “Don’t let your emotions allow you to fall prey to gimmicks and trying to beat the market,” says Scott Puritz, managing director of Rebalance IRA, an online retirement investment advisory. “Instead, opt for a simple, straightforward investing strategy. Likewise, investors who go it alone often feel anxious and ashamed by their lack of experience, and these emotions can cloud judgment.”

3. Ignoring the contrarians. 

© Jon Feingersh/Getty Images

Contrarians aren’t always right – but when they establish a track record over the long run, they’re worth listening to. “Often the best investment ideas are contrarian,” says Daniel Beckerman, president of Beckerman Institutional in Oakhurst, New Jersey, and a portfolio manager on Covestor. “Sentiment was extremely low in early 2009 after the financial crisis when stocks hit their lows. In retrospect, this was the best entry point for stocks in recent years.”

4. Misreading probabilities. 

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Yes, it’s “buy low, sell high” – but sometimes what’s perceived as high is really somewhere in the middle, if given enough time. “I constantly hear folks say that markets are at an all-time high, so we should get out of the stocks before they drop,” says Benjamin Schwartz, a senior financial planning associate with Plancorp, headquartered in St. Louis. “While that may seem intuitive, statistically this logic does not hold up. Future returns are independent of past returns – just as a coin toss does not determine how it will land based on previous flips.”

5. Failing to ask the right questions. 

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Too many people blindly hand their money over to financial firms and money managers, hoping for the best, says Bobby Monks, co-author of “Invested: How Wall Street Hijacks Your Money and How to Fight Back.” These investors “dramatically increase their risk of ending up with lousy investments and overpaying for them. And it’s not enough to simply ask questions. You need to understand the answers; for example, how they’re compensated and whether they put a meaningful amount of their own money in the investments they sell you,” Monks says.

6. Not periodically rebalancing your portfolio. 

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Whether they’re winning or losing, many investors are reluctant to sell, Guffey says. “The thinking goes that if something has made money in the past, it will continue in the future. The other side of the coin is when something is down, an investor starts telling themselves they will sell it when it gets back to a certain value,” he says. Because rebalancing is an ongoing, systematic process, it takes the nonproductive guesswork out.

7. Counting on Uncle Sam for retirement. 

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Some investors may put off retirement investing, thinking Social Security will make up the difference. “They should know that Social Security will only cover 10 to 30 percent of retirement living expenses,” says Edward Kohlhepp, an independent financial advisor in Doylestown, Pennsylvania. People who don’t hit on this at the right time “often start investing with too little, too late,” Kohlhepp says.

8. Letting your bad behavior get in the way. 

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Some investors might blame the market or rotten luck when they’re responsible. “Ultimately it’s our own behavior that does us in,” says Peter Mallouk, author of “The 5 Mistakes Every Investor Makes and How to Avoid Them.” “The key to dodging the pitfall is to be aware of what your instincts tell you and recognize behavioral land mines.” These include overconfidence and succumbing to herding mentality.

9. Assuming retirement equals a lower tax bracket. 

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Retirees ready to thumb their noses at the Internal Revenue Service might be in for a rude awakening, says Dave Henderson, a financial planner based in Greenwood Village, Colorado. “Many times when people get to retirement, they have paid off their mortgage, their kids are out on their own and they are no longer contributing to deductible retirement plans,” he says. But between pension plans, withdrawals from retirement accounts and partial taxation of Social Security, “their income may not be much lower, and they have very few things to deduct, resulting in higher taxation than they planned for.”

10. Assuming your advisor is a legal fiduciary. 

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In investment, legal fiduciaries act solely in the investor’s interests. And while only a small percentage of financial advisors have a legal fiduciary relationship with clients, “most investors believe their relationship includes a fiduciary duty,” says George H. Walper Jr., president of Spectrem Group in Chicago. “This disconnect could lead to major conflict between the investor and the advisor if the reality does not match the expectation.”

Written by Lou Carlozo of U.S. News & World Report

(Source: U.S. News & World Report)