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How Social Security has Failed Widows and Widowers

How Social Security has Failed Widows and Widowers

The Social Security Administration (SSA) recently released an internal audit1 that was conducted to determine if adequate efforts were made to inform widows and widowers of their option to claim survivor’s benefits. The results showed the answer was a resounding, “No.” The audit showed that a large majority, 82 percent, of beneficiaries who are entitled to receive survivor benefits initially while delaying their own benefits were never informed of this option for a larger benefit.  The audit estimated that the SSA underpaid 9,224 eligible widows/widowers a whopping $131.8 million. Back in 2015, Congress passed the Bipartisan Budget Act. It ended the popular “file-and-suspend” strategy that allowed a spouse to suspend their own benefit while collecting a spousal benefit once their partner began collecting Social Security. Using this strategy, the spouse who had suspended their own benefit allowed it to increase by 8 percent per year for every year they delayed beyond full retirement age (up to age 70). While the file-and-suspend strategy was deemed to be a loophole that was giving married couples more than intended, another claiming strategy for widows and widowers was not affected. This technique is known as filing a restricted application for survivor benefits. A surviving spouse or eligible surviving ex-spouse can choose to initially claim survivor benefits at full retirement age. In doing so, this preserves his/her right to hold off on claiming their now increased retirement benefits until age 70. Unfortunately, the audit shows SSA employees have done little to nothing to inform those who are eligible about this strategy – despite it being a requirement for employees to explain all filing considerations to the claimant so that they may make an informed decision. To better understand just how much surviving spouses miss out on when they do not choose to delay their retirement benefits, here is an example from the audit:                 “In January 2011, an individual applied for retirement and widow’s benefits. She was eligible for a $1,403 widow’s and $1,140 retirement monthly benefit. SSA paid a combined widow’s and retirement monthly benefit amount of $1,403, consisting of $263 as a widow and...

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When a Marriage Ends, What Happens to Your IRA?

When a Marriage Ends, What Happens to Your IRA?

Though no one likes to admit it, divorce is a very real possibility for many marriage in the U.S. – with between 45 % estimated to fail*. It is undoubtedly a stressful occurrence, but it’s important to not let yourself be taken advantage of. There are a number of financial traps the unsuspecting can fall into, especially when it comes to your IRA or 401(k) accounts. Depending on the type of retirement plan, the rules could differ on how they can be divided in a legal separation. Retirement accounts are often the largest single asset a person has in a divorce, other than their home, so it’s important to be equipped with the right information. It's also important to underscore the information provided here is only meant as general information and not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor. Transferring an IRA  According to Section 408(d)(6) of the Internal Revenue Code, the transfer of an individual’s interest in an IRA to a former spouse is not a taxable transfer. The spouse who gives up the assets is no longer responsible for any future taxes or penalties from distributions that may occur. The receiving spouse, however, will be responsible for any taxes or penalties once it becomes their IRA. Keep in mind though, if funds are distributed then paid to the ex-spouse, it is considered a taxable event for the original owner of the IRA. For a tax deferred movement of funds, the IRA must be ‘transferred’ NOT ‘distributed’. To make the process easier, it’s likely a good idea to have the court order detail exactly how the IRA should be transferred. Splitting IRAs vs. Qualified Plans The rules for splitting up assets in a qualified plan, such as a 401(k). To transfer qualified assets, a qualified domestic relations order (QDRO) is required. An IRA, on the other hand, is split via the divorce agreement. Once the court has issued the QDRO to the spouse requesting it, it then must be sent...

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5 Commonly Heard Myths about Social Security

5 Commonly Heard Myths about Social Security

Upon retirement, many of us expect to receive our Social Security benefits – a much needed supplement to our income in retirement. And due to this expectation, it’s no surprise we become uneasy when we hear worrisome remarks on the fate of Social Security. Here are five common myths we hear about Social Security, and the actual facts behind each one. Social Security Will Run Out of Money Soon It’s true, the Social Security program does not have enough funds for the foreseeable future. But the situation is likely not as dire as you may fear. As of July 2017, there was $2.85 trillion in the reserves, and there was even a surplus of $35 billion in 2016. But thanks to the retiring baby boomer generation, the surplus will likely swing to a deficit around 2020. At this point, Social Security will rely on incoming interest payments to help make up for the deficit. This reliance on interest will only last so long, with funds being depleted by 2034….IF no changes are made. Let’s start here with the “no change” scenario. If nothing is done, social security beneficiaries can expect to see their payment checks decrease by about 25 percent. Not ideal, but also not a total disappearance like many people think. More than likely though, Social Security will be kept afloat. One possible fix would be to gradually raise the Social Security tax rate for employers and employees from 6.2% to 8.2% by 2052 – and this is only one of numerous proposed fixes. The main problem here is just getting our politicians to agree on a solution. Social Security is Running Out Due to Government Theft Financial mismanagement is not the reason Social Security is projected to run out of reserves, and it is definitely not because of government theft. The real problem is the baby boomer generation beginning to retire. Up until 2016, there has always been roughly a 3 to 1 ratio of people paying into Social Security to those receiving it. The ratio now is 2.8 to 1, and it will only continue to fall, reaching...

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5 Types of Investment Fraud You Must Know

5 Types of Investment Fraud You Must Know

A critical skill for any investor is the ability to spot a financial scam when presented with one. Unfortunately, all too many investors are fooled every day – don’t let yourself become a victim! While investment fraud can come in all shapes and sizes, there are five notable “red flags” you should always watch out for when looking at an investment. Promise of High Returns The first is any promise of high returns with virtually no risk. ALL investments carry some degree of risk, and generally speaking, greater returns come with taking on MORE risk. You’ll also want to avoid any investment that “guarantees” you’ll receive certain high returns. Unregistered Investment Representative The second flag to be aware of is whether or not the person offering you the investment is a registered and licensed investment representative. Thankfully, the SEC has made this one easy, as you can search their online database as well as FINRA’s BrokerCheck online, for free. These resources can be found here: SEC’s online database: https://www.adviserinfo.sec.gov/IAPD/Default.aspxFINRA’s BrokerCheck: https://brokercheck.finra.org/ Suspicious Background While checking to see if the advisor offering the investment in question is registered, keep an eye out for the third red flag: reported problems in the financial professional’s background. These can include things like termination, failed industry qualification examinations, numerous bad reviews, etc. While an investment professional might be in good standing with their current institution, an unsavory past will say a lot about what they’re likely to do in the future. Pushy Sales Tactics A fourth flag to be aware of is the pressure to invest NOW. No investment professional should ever push you to make a quick decision or a decision on the spot. You are entitled time to do your own research. The Free Meal And last but not least, the final flag we see all the time – free meals. Be very wary of “free dinner” seminars you’re likely receiving in the mail. More often than not, these dinners are not meant to educate, but to sell investment products. Should you decide to attend one anyways, we recommend going into it knowing not...

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Choosing Between a 529 Plan and UTMA: Your Quick Guide

Choosing Between a 529 Plan and UTMA: Your Quick Guide

According to the College Board1, the average cost of college for 2017 was $34,740 at private colleges, $9,970 for in-state residents at a public college, and $25,620 for out-of-state residents at a public college. No matter how you look at it – it’s not cheap. A possible solution? A designated education savings account could be the way to go. But with several ways to save for your child’s education, we understand that it can be tricky knowing where to start. Because everyone’s individual needs are different, there really is no one option that can be recommended for everyone. However, two very popular choices for education saving are the 529 education savings plan and UGMA/UTMA custodial accounts. Here are some of the aspects of each account to consider. 529 College Savings Plans As of December 2017, 529 education savings plans can now be used to pay for private elementary school and onward, in addition to college expenses. For those who know their child will be attending a private school, college, or both, and intend on saving money for a majority of the tuition, a 529 Savings Plan could be a suitable option. This tax advantaged investment account allows individuals to contribute towards a beneficiary’s education expenses. Specifically, the tax advantage with these plans is that tax earnings are able to grow tax-deferred and withdrawals are tax-free when used for qualified education expenses. These 529 plans are generally sponsored by individual states, or in some cases, by qualified educational institutions, and are administered by investment companies that oversee the underlying assets. There are no annual contribution limits for a 529 plan, and contributions are treated as gifts for federal tax purposes. This means anyone can give up to $14,000 a year free from federal gift taxes. Donors also have the option of averaging a single lump-sum contribution over five-years, meaning they could give a gift of up to $70,000 at one time, tax free. But keep in mind, while there is no annual contribution limit for 529 plans, each plan does have a maximum contribution per beneficiary allowed. These maximums are generous though,...

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Why Women Need to Save More Than Men

Why Women Need to Save More Than Men

Men and women may not be on equal footing when it comes to investing for the future. On average, women work fewer years and earn less than men, but they also tend to live longer.1 Therefore, women must focus on the concerns that are unique to them when planning for retirement. Women Don't Invest Differently ... Unfortunately, some negative stereotypes still exist about a woman's ability to manage money, which may cause some women to feel they shouldn't make their own investment choices. Some leave the decision making to their husbands, which can result in their being ill-equipped to handle their finances if they outlive their spouses. Despite the stereotypes, studies show that the majority of married women actively participate or take the leading role in managing family finances. Educating themselves about investments and long-term planning can help women feel more comfortable with riskier -- yet potentially more rewarding -- investments. As more women enter the field of financial advising and planning, female investors may also be more inclined to seek advice from other women. ... But There Are Real Obstacles to Overcome Women earn only about 83 cents for every dollar earned by men.2 Because they earn less, women often are unable to invest as much as men. However, in order to make up for other discrepancies in retirement benefits, women may actually need to invest more. For example, because women often leave work to bring up children or care for elderly relatives, they have fewer total working years. On average, they spend seven years out of the workforce to care for family members.3 This may mean that women qualify for lower pension benefits. Fewer years in the workforce, fewer years with a single employer, and lower pay are all factors that may contribute to a lower average pension for female retirees. At the same time, women on average live longer than men. That means they must provide for more years in retirement than their male counterparts. As a result of some of these factors, women may also receive lower Social Security benefits than men. Social Security benefits are calculated...

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What is Risk Tolerance and How Do You Determine Your Own?

What is Risk Tolerance and How Do You Determine Your Own?

Thinking about risk in investing can elicit a number of emotions. Does it mean the opportunity for great returns? Or does it bring up thoughts of being left with nothing? Or to you is investment risk not exciting at all, just an inevitable part of the investment process? Asking these types of questions can help you better understand what your risk tolerance is. How would you react if you were to have a significant loss? Could you weather the storm? Defining Risk Tolerance Risk tolerance is a measure of how much risk an investor can emotionally handle. It is based upon the investor’s examination of just how big their appetite for risk is – which can be tricky to figure out. Sometimes it can be hard to figure out how much you can emotionally stand to lose in a market dip until you’re smack in the middle of one. You may not know your comfort level with uncertainty until you are faced with a loss. Self-analysis about your attitude towards risk is important to do before you begin investing. Determining Your Time Horizon Possibly the most important factor in determining your risk tolerance is your investment time horizon, or how long you plan to keep the money invested. The sooner you need the money, the more conservative your risk tolerance will be, as stocks behave much more volatilely in the short term. If you need your money quickly, it’s risky putting it into a portfolio that is heavy on stocks. Conversely, if you’re investing for the long term, you can “afford” more risk because you will have more time to recover from a loss. In fact, if investing for the long term, it can actually be detrimental to keep your money in cash as inflation will “erode” its value. Asses Your Other Ways to Make Income Your risk tolerance is also dependent on what your other income streams are and how stable they will be. Someone with a secure job and steady pay can afford to take on more risk because their investments aren’t their primary source of income. Those who...

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Why Many Trusts End Up Failing

Why Many Trusts End Up Failing

A trust can be a powerful estate planning tool – protecting your assets from creditors, shielding your estate from loss, safeguarding benefits for the disabled, avoiding probate costs – we could go on. And yet, many trusts fail to work the way they were intended to! So what makes a trust fail? We’ll talk about some of the most common mistakes we see with trusts. Failure to Fully Fund the Trust This is a BIG mistake, and yet we see it frequently. A trust can only manage assets that are in the trust. If an asset is not titled in the name of the trust, then it is not protected by the trust. Therefore, all assets in the trust must state the trust as the owner. Simple enough concept, right? But you would be amazed how many people let assets slip their mind, and never re-title them. The problem here is a lack of understanding. Just because you had an attorney generate your trust does not mean it’s fully funded. And if you used a more affordable online service to create your trust, there is likely an even higher chance that it’s not fully funded. Fortunately, funding a trust is not as hard or confusing as it is time consuming. Once your trust is drawn up, you’ll need to: Sign a new deed placing your real estate properties in the name of your trustChange the ownership of your bank and brokerage accounts to your trustChange beneficiaries on your retirement accounts to your trustChange the beneficiaries on your life insurance policies to your trustHave any stock certificates reissued in the name of your trust This list is by no means exhaustive, and it may be a good idea to employ the help of an estate planning attorney. Without being fully funded, a trust cannot fulfil its primary purpose – avoiding the probate process. Life Changes Your life is constantly changing, be it marriage, children, divorce, a new job – there are any number of changes a person can go through in their lifetime. As our lives change, it’s incredibly important that your...

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Caring for Your Pets Once You’re Gone

Caring for Your Pets Once You’re Gone

Though not an unusual request, we realize that estate planning for a pet or pets is not all that common. For many people, their pets are viewed as members of their family, and are treated as such. So even though you can’t leave money or property to your pet as you could a normal beneficiary, you can still plan to make sure your pet has a good life after you’re gone. Using a Will Estate planning for pets can range from a simple, non-legal arrangement, to a complex trust. But for any of these options, you’ll need to find a caretaker or organization that can be trusted to take care of your pet. If you choose to leave instructions for your pet in your will, remember, you cannot leave money or property directly to your pet. Instead, you must leave the money to your trusted caretaker. With this arrangement, your pet will legally belong to your chosen caretaker with the hopes that they will use any money you provide for the benefit of your pet. Ultimately though, they can use the money however they please, so we recommend finding a backup caretaker should your first choice not be up to the job. Consider a Pet Trust A stronger, though more expensive, option is to use a Pet Trust. In a pet trust you’ll need to state which animals are covered, who will take care of your pet, the amount of money to be used for the animal’s care, caretaking instructions, a person to go to court should the trust not be enforced, and what should be done with any leftover money. The advantage here is you create accountability for the money that you leave to the caretaker, as well as an enforceable caretaking plan. The disadvantages – it’s costly and inflexible should circumstances change after your death. Find a Legacy Arrangement Yet another option is a Legacy Arrangement. If you are unable to find a person you trust to take care of your beloved pet, you still have options. A legacy arrangement is a type of program designed to care for...

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How Long to Hang On to your Financial Statements

How Long to Hang On to your Financial Statements

When preparing for our financial planning meetings, we occasionally ask clients for various financial statements - be it insurance statements, tax returns, etc. At times, we’ll request to see documents that go a few years back. And during tax season? If you’ve ever been audited by the IRS, you better believe they’re going to ask for anything and everything they can. It’s one of the only courts where failure to produce your financial documents constitutes tax fraud. How do you know what you need to hold on to? And for how long? It can be easy to start hoarding documents for fear that you might need them again someday. To help you avoid the pile-up, here’s our list of the financial documents you need to keep, and how long you can expect to hang on to them. Brokerage Statements/ Retirement Account Statements Depending on your account, you’re likely receiving monthly or quarterly financial statements until you get your annual statement. Though most financial institutions will have a stored copy of these statements, go ahead and keep a copy of those monthly or quarterly statements until you receive your annual statement. Once you have your year-end statement, you can shred the smaller statements. Keep a copy of your annual statement forever, as well as any IRA nondeductible contribution records. Even though many custodians will keep electronic copies of your account statements, it’s always better to err on the side of caution when it comes to dealing with the IRS. Bank Statements Every month you should receive a statement from your bank for your bank accounts, whether it’s by mail or electronic. A good rule is to keep a copy of these statements for one year. An exception to this rule would be those bank statements that reflect a tax-related purchase, such as home improvements, business expenses, etc. In these cases you’ll want to keep those statements forever or until the home or business is sold. Credit Card Statements Make sure you keep the receipt for anything you purchase with a credit card until the statement arrived. Once you have the statement, you...

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Inflation: Retirement’s Silent Killer

Inflation: Retirement’s Silent Killer

Let’s take a step back in time – where were you in 1980? Remember it like it was yesterday? In 1980 the average cost of a new car was $7,210. Today on average you’ll pay about $33,000! And we’re sure you’ve noticed the substantial change in gas prices. These staggering price differences are due to inflation – and it can have a big effect on your purchasing power in retirement. At an inflation rate of 3.0% (a very possible estimate), in ten years your dollar will be worth $0.74 cents. In 20 years it will only be worth $0.55 cents, and in 30 just $0.41! You can’t afford to forget about inflation when saving for retirement. Inflation Eats at Savings and Diminishes Buying Power While inflation won’t reduce the actual amount of dollars you have, it does hurt your purchasing power. And more likely than not, your bank’s interest rate for your savings account is far below the rate of inflation. This is particularly troublesome for senior citizens in retirement who are more likely to spend money on things that tend to increase in price – healthcare being the big one. According to the Centers for Medicare and Medicaid Services1 (CMS), health care costs are three times higher for elderly Americans than for the average working adult. The CMS also projects that between now and 2025, health care spending will grow at an average rate of 5.6% per year. While Social Security does make cost of living adjustments, these adjustments are based on inflation, and Health Care costs are rising at a much faster rate. Food and fuel costs can also be volatile, with factors like livestock disease, or drought. You can expect this to continue happening into your retirement. Planning for Inflation So how do you fight inflation? You incorporate it into your retirement plan. Assume a reasonable rate of inflation when making your calculations, we’d suggest about 3% per year. You can use an inflation calculator (many are available online for free) or consult a financial professional. We also highly recommend staying invested during retirement. While your investment objective...

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Tax Advice for Hurricane Victims

Tax Advice for Hurricane Victims

As a business with one of our locations in Florida, we are all too familiar with the ways a hurricane can flip your life upside-down. This year has already been devastating, with both Hurricane Harvey and Hurricane Irma ripping through Texas and Florida.   Thankfully, for those affected by natural disaster, the IRS offers some relief. It is important for anyone who has suffered financial losses as a result of the storm to be aware of these tax strategies. IRS Extends Filing Deadlines for Hurricane Victims In the aftermath of a natural disaster, the IRS will routinely ease filing deadlines for those who were affected. In the case of Hurricane Irma and Harvey, those in affected counties who were on extension to file their 2016 returns have now been granted an additional tax extension on some individual and business tax returns and tax payments. Victims who had extensions now have until January 31st to file without penalty. To find the areas in which the IRS has granted tax relief, you can visit their Tax Relief in Disaster Situations page. Taxpayers with an address in any of the specified disaster areas will automatically be given relief by the IRS and will not need to contact them. However, if you still receive a penalty notice from the IRS and you live in one of the affected areas, we recommend calling the phone number on the notice to make sure the penalty will actually be abated. Make Copies and Keep Detailed Records We highly recommend having copies of all your important documents saved in a different location than your originals. At Walsh & Associates, we keep copies of any financial documents you provide – including estate documents and tax documents. Other options include storing copies on the cloud, or a fire and water proof security box.   It is also good practice to take up-to-date pictures of all valuables and appliances in your home that are of high value. These pictures will be incredibly useful should you have to make an insurance claim. Individuals who have an uninsured or un-reimbursed disaster-related loss can claim these...

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Many Estate Tax Payers May Have Just Received a Big Break

Many Estate Tax Payers May Have Just Received a Big Break

The IRS has released a new rule that will simplify the method for estates to obtain an extension of time to make the estate tax portability election.  Known as Revenue Ruling 2017-34, this new rule will ease up on surviving spouses who failed to take advantage of their deceased spousal unused exclusion amount (DSUE) in a timely manner.  Background on the Federal Estate Tax and Portability The federal government imposes an estate tax on the value of your assets when you die. For 2017, the exemption is $5,490,000. This exemption is cumulative, meaning taxable gifts made during one’s lifetime will use part of the exemption. For any year after 2010, a deceased spouse’s exemption can be ported to the surviving spouse, meaning a total of $10,980,000 could potentially be exempt from estate tax. This ported exemption is the DSUE, and it required the filing of a return for the estate of the deceased spouse, even if that estate is too small to otherwise require filing. After the portability provision in 2010 was enacted, the IRS gave filers a simplified way to obtain an extension for filing their estate tax return through December 31, 2014. However, it seems many people still missed the 2014 deadline, and the IRS was inundated with requests for private letter rulings to allow late elections – and those aren’t cheap! (For taxpayers in 2017 with an income of $1 million or more, a private letter ruling will cost them $10,000). Ruling 2017-34 The new ruling offers relief to the estates of those who died after 2010 and did not file an estate tax return. In order to qualify for the automatic extension, these are the requirements that must be met: The taxpayer is the executor of the estate of a decedent who: Died after December 31, 2010 Has a surviving spouse Was a citizen of the United States upon date of deathThe taxpayer is not required to file an estate tax return as determined by their gross estate and adjusted taxable gifts valueThe taxpayer did not file an estate tax return within the time allotted by Reg. § 20.2010-2(a)(1) for...

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Could You Need a QTIP Trust?

Could You Need a QTIP Trust?

Though oddly named, a QTIP trust is used by many wealthy couples to protect their assets and provide for the surviving spouse. The catchy QTIP acronym stands for Qualified Terminable Interest Property, which is property in a decedent’s estate that can still qualify for the estate tax marital deduction (with certain restrictions). QTIP can also be property that is given to a spouse that will qualify for a gift tax marital deduction, also subject to some restrictions. Controlling Property with a QTIP Trust Both spouses can set up a QTIP trust, leaving the assets to the other in trust. After the first spouse dies the surviving spouse receives any income that the assets produce and the use of any real estate in the trust. Only the surviving spouse can be named the life beneficiary, however, the surviving spouse does not have full ownership of the assets in the trust, nor can they give away or sell any of the assets. When the second spouse passes, the remaining assets go to the final beneficiary or beneficiaries named in the trust. Why would this be desirable? Commonly, QTIP trusts are used in second marriages where one spouse wants to support their current spouse, but ultimately wants to ensure their children from a previous marriage receive the amounts held in trust. When a spouse makes it clear that their children from a previous marriage will inherit assets, it can help reduce family tension between children and stepparents. Deferring Estate Tax with a QTIP Trust With inevitable tax reform, it may be unclear what the estate tax landscape will look like by the time a trust is put into effect. A QTIP trust does not eliminate estate tax, but it will at least postpone it until the death of the surviving spouse. The QTIP allows for use of the marital deduction at the first spouse’s death under an exception to the terminable interest rule. (The terminable interest rules states that a terminable interest in a property can expire due to a lapse of time or due to the occurrence or nonoccurrence of a future event)....

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DOL Fiduciary Rule Kicks in June 9 – Advisors to Retirement Investors must be Fiduciaries or Face Penalty

DOL Fiduciary Rule Kicks in June 9 – Advisors to Retirement Investors must be Fiduciaries or Face Penalty

The Department of Labor’s Fiduciary Rule will officially kick into effect on June 9, 2017, with full implementation by January 1, 2018. As of June 9, all advisors to retirement investors must adhere to “impartial conduct standards”, meaning they must give investment advice that is in the best interest to the client, charge for reasonable compensation, and make no misleading statements. This differs from the suitability rule that broker/dealers adhere to, which states that a broker need only to believe that recommendations given are consistent with the interests of the client’s financial needs at the time, but that does not mean they must be in the client’s best interest. Labor Secretary Alexander Acosta confirmed on May 22, 2017 that the fiduciary rule will become applicable on June 9, 2017. The implementation of the rule, originally set for April 10, has been delayed 60 days in order for the DOL to reassess the regulation under a directive from President Trump. Joseph Walsh, CEO of Walsh & Associates, a financial planning firm, urges local citizens to consider finding a financial advisor who already acts as a fiduciary. Much like a doctor’s Hippocratic Oath, the fiduciary rule holds an Investment Advisor responsible for maintaining a high code of ethics. It requires standards that are more stringent than the suitability standard. While the fiduciary rule will be in effect on June 9, the DOL will not be enforcing any parts of the rule until January 1, 2018. This is also assuming that the rule won’t be permanently shelved by the Trump Administration before January 1. Walsh & Associates offers comprehensive fiduciary financial planning services and has a fiduciary relationship with every client. Acting in good faith and with the client’s best interest in mind, Walsh & Associate’s financial advice is objective, honest, and confidential. Should the DOL Fiduciary Rule be permanently delayed, Walsh & Associates will still act as a fiduciary regardless.    Citizens interested in learning more about the fiduciary requirement for advisors to retirement investors are welcome to contact the Walsh & Associates office at 941-952-1188 or email This email address is being protected from spambots. You need JavaScript enabled to view it..   About Walsh & Associates...

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Reasons Not to Invest in the Last 50 Years

Reasons Not to Invest in the Last 50 Years

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Why Your Charitable Gift Receipt is So Important

Why Your Charitable Gift Receipt is So Important

Americans are an incredibly charitable group. According to a 2015 study done by The Giving Institute1, Americans donated $373 billion to charitable causes, and $268 billion of that was given by individuals. To benefit these charitable individuals, the IRS provides a charitable contribution deduction. But be aware, there are some very specific stipulations that must be followed, or your charitable contribution won’t count in the eyes of the IRS. Must Have a Gift Receipt In order to receive a charitable contribution deduction for any donation over $250, you must obtain a charitable receipt from all qualifying charities that you donate to. Specifically, you must obtain a contemporaneous written acknowledgement or CWA. While smaller or inexperienced charities may be inclined to give you a thank you letter, payroll stub, credit card receipt, or other statement, these alone will not be enough. CWA Requirements In order to have your contemporaneous written acknowledgement accepted by the IRS, it must include the following criteria: 1. The name of the charity 2. The date of the contribution 3. The amount of the cash contribution to the charity 4. A description of any non-cash contribution (not including the value) 5. A statement regarding whether or not any goods or services were provided in exchange for the contribution 6. If applicable, the value of the goods or services provided by the charity to the donor What You Should Know about the Requirements To ensure you will receiving your charitable contribution deduction, there are a few details you should know about the CWA requirements. Naming the Charity Though donor receipts may include the charity’s EIN and address, all you technically need is the charity’s name and name of the donor. However, the donor is expected to have a copy of the charity’s address in their records, so it doesn’t hurt to have it on the receipt. Date of Contribution While the date of the contribution does not technically need to be on the donor receipt, the requirement does state that the donor must have a record of the date of their donations. Unless the donor is well-organized, most people...

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What Students Need to Know About the American Opportunity Credit and Lifetime Learning Credit

What Students Need to Know About the American Opportunity Credit and Lifetime Learning Credit

American Opportunity Credit The American Opportunity credit gives students the chance to reduce the cost of attending college. Students must meet several requirements to be eligible for the credit. To be eligible for the credit, the student must be enrolled at least half time, for at least one semester in designated tax year, and be working towards a degree. If a student has already completed four years of college, they are no longer eligible. Any student that has been convicted of a state or federal criminal druge charge is not eligible for this credit. Eligible institutions are not just limited to colleges and universities. Any college, university or trade school that meets the standards of the U.S. Department of Education financial aid program qualifies for this tax credit. The student needs to be paying tuition and fees at an eligible institution to include the credit. Any supplies that directly relate to the students field of study can be included in the credit. For this tax credit, you cannot include amounts that come from any tax-free source, such as Pell grants. The credit also does not include certain expenses like room and board. For the borrowed funds a student uses, like student loans, there are no requirements by the IRS to reduce qualified expenses. Students can only use one credit per year. If you are claiming two dependents who are both eligible students, you can use the American opportunity credit for both students. However, you cannot use it for dependent number 1 and then use another credit for dependent number 2. The credit can equal 100% of the first $2,000 on the qualified expenses, and 25% of the next $2,000 of qualified expenses. The maximum amount an eligible student can claim is $2,500. If you are claiming more than one eligible student, you can claim the $2,500 for each as long you paid $4,000 adjusted qualified education expenses for each student. For example, if you have two eligible students and paid $4,000 adjusted qualified education expenses for each, you can claim $2,500 for each eligible student. Alternatively, if you paid $3,500 in education expenses for...

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How Does a 529 Plan Affect My Taxes?

How Does a 529 Plan Affect My Taxes?

For those of you who have 529 plans, you may be asking how your contributions to the plan will affect your tax return. While for the most part they’re relatively low-maintenance, there are definitely a few times when your 529 plan could come into play during tax season. What to Do with Your 1099-Q? Let’s say you took a distribution in the last tax year and received a 1099-Q from the plan. Are you required to report the earnings on your taxes? The answer here depends. If you used the funds to pay for qualified education expenses, or rolled the funds into a different 529 plan, you are not required to report anything. Alternatively, if the 529 funds went to a non-qualified purchase, it is then a taxable withdrawal. Qualified education expenses include tuition, school fees, books, technology needed for learning purposes, and some room and board costs. For non-qualified expenses you will be subject to income tax and a 10% penalty. Maximizing Your Contributions Though there isn’t really a way to time your contributions to help minimize federal taxes, there are some strategies you can use to get the most from your contributions. 529 contributions are considered gifts for tax purposes, which means you can contribute up to the $14,000 gift tax limit, or $28,000 for married couples filing jointly, for each child with a 529 plan. Should you or your family want to contribute more, you are able to make the election to spread your contribution over five years, for up to $70,000, or $140,000 for married couples filing jointly. State Income Tax Credits If you live in a state where you pay state income taxes, you could be eligible for a partial or full tax credit or deduction. Over 30 states offer these credits or deductions for 529 plan contributions. Typically a state will only offer these tax benefits to residents using their home state’s 529 plan but there are a few states that will allow taxpayers to receive a deduction for contributions to any state’s plan. Coordinating your 529 Expenses and American Opportunity Tax Credit Expenses If...

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Strategies for Maintaining Your Wealth while Giving to Charity

Strategies for Maintaining Your Wealth while Giving to Charity

Some potential charitable donors are faced with quite the dilemma: how to give to charity while still maintaining wealth and financial security for their own family. The concern is that a substantial charitable gift could end up depriving their family members of funds they may need for future emergencies. But the longer the potential donor stalls, the longer their charity of choice goes without their beneficial contribution, not to mention the donor misses out on potential income/estate tax savings. A possible solution? For some donors, it’s the “wealth replacement technique”. What is Wealth Replacement? The wealth replacement technique addresses a donor’s concern for the wellbeing of their family should they also donate to charity. Wealth replacement involves the use of three financial instruments: a charitable remainder unitrust, (CRUT), (or another charitable vehicle), a life insurance policy, and an irrevocable life insurance trust. With these three tools, a donor would ideally be able to donate to charity, then use the savings from their charitable tax deduction along with the payout from their CRUT to purchase life insurance that would replace the assets that were given to the charity. Explaining the Wealth Replacement Technique The wealth replacement technique first involves a charitable remainder unitrust. This trust provides for annual, or more frequent, payouts to the donor or specified beneficiary of the plan, such as a spouse or family member. The second step comes into play if the donor is likely to be subject to federal estate tax, or if the donor wants to protect their beneficiaries from creditors, then an irrevocable life insurance trust (ILIT) should be considered. The trustee of the ILIT purchases a life insurance policy on the donor’s life with a death benefit equal to the value of the assets transferred to the CRUT. The donor can then use the a portion of the income payout from the CRUT and estate tax savings to make a charitable gift to the ILIT in the amount of the insurance premiums the trustee must pay. If done properly, after the death of the second spouse, the life insurance death benefit will go to...

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