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Ensuring a Successful Start

Posted on January 4, 2022 in

Welcome to 2022! Now that the confetti and celebrations have settled, have you taken the time to set financial goals to work towards in the next 12 months? Following these five, simple resolutions can ensure that you’re on the path to achieving financial independence in the in the New Year:

1 | Reevaluate the Past Year’s Goals

This can be a helpful conversation to understand what went well and what needs to be improved. Also, it helps to fine-tune what goals were attainable and what is realistic for the year ahead. Review the past year’s savings and spending to determine if your habits are helping you reach your goals.

2 | Pay Yourself First

One major component of achieving financial independence is paying yourself first. Whether it’s maxing out employer-matched 401k and retirement accounts or a high-yield savings account, allocating your earnings can help you in the future and ensures that the bottom line reflect your assets after you contribute to your financial resolutions.

3 | Establish an Estate Plan

An effective estate plan is one of the most crucial parts of a financial plan and avoids disagreements and unnecessary expenses. If you are looking to create your estate plan, make it a team approach. Be sure to include your CPA, your estate attorney, and your trusted financial advisor. If you already have a plan established, take a few minutes to review it with your advisor to make sure it still makes sense for you and anyone else it may cover.

4 | Expect the Unexpected

As we have learned over the last two years, we must accept the curveballs thrown our way and Congress has been in talks about infrastructure bills and pandemic-related measures. Thinking through the possible changes and gathering ideas on what to do if they happen will make it easier to take action when changes take place.

5 | Meet With Your Financial Advisor

It would be easy if there was a one size fits all solution to achieving financial independence, but unfortunately this is not the case. Each individual or family has unique circumstances, which is why it’s encouraged that you seek a trusted financial. Your financial advisor will evaluate the big picture and navigate through investment strategies, tax planning, estate planning, and whatever is important to you by aligning all your resolutions into a clear, actionable plan.

Plenty of Reasons to be Optimistic About Stocks

Posted on December 23, 2021 in

2021 was a great year for investors. The economic recovery continued, corporate earnings improved, and investors in high-quality American businesses did well. Looking into next year, there are still plenty of reasons to be optimistic about stocks.

The Economic Expansion Will Continue

Unfortunately, widespread vaccinations haven’t been enough to put an end to the COVID pandemic. However, the economic impact of the virus this year was far less than the 2020 wave. Future COVID waves might be significant public health challenges, but they won’t be enormous economic ones.

The Federal Reserve is set to tighten monetary policy, which should help ease inflationary pressures. New unemployment claims have reached pre-pandemic levels. Consumer spending continues to increase. Although the personal savings rate has returned to pre-pandemic levels, consumers are still not borrowing at the same rate as they were pre-pandemic. The net worth of American households is higher than it’s ever been. Consumer spending is about 70% of the economy, and all signs point to healthy consumers who can and will continue to spend money.

History and all the economic data tell us that the expansion which started in April of 2020 is likely to continue.

Earnings Will Continue to Grow

Most importantly for long-term investors, earnings will continue to grow. History shows that once an economic expansion begins, both earnings and profit margins tend to improve. When the final numbers for 2021 are in, S&P 500 companies will likely report earnings that are 25% higher than they were in 2019. If you want to understand why the markets have performed so well over the past two years, just look at the earnings!

If you want to understand why the markets have done well over the past two years, just look at the earnings.

While earnings are 25% higher than they were pre-pandemic, many companies have been reluctant to return capital to shareholders. This is a normal response to economic uncertainty. Although earnings are up 25%, dividends have only risen 12%, and stock buybacks have just now reached 2018 levels. As concerns about future waves of the virus subside, companies will be more willing to return capital to shareholders, rewarding investors who have been following the fundamentals.

The markets and the economy are cyclical, but the ups and downs are part of a bigger picture. For long-term investors, the big picture is clear: investing in the stocks of great American businesses is still the best way to create and protect wealth.

Matthew A Treskovich | CFA, CPA/PFS, CITP, CMA, CFP®, AEP®, MBA, CLU, ChFC
Chief Investment Officer

What Will You Pay for Medicare in 2022?

Posted on December 23, 2021 in

Medicare Part B Premiums

According to the Centers for Medicare & Medicaid Services (CMS), most people with Medicare who receive Social Security benefits will pay the standard monthly Part B premium of $170.10 in 2022.

People with higher incomes may pay more than the standard premium. If your modified adjusted gross income (MAGI) as reported on your federal income tax return from two years ago (2020) is above a certain amount, you’ll pay the standard premium amount and an Income-Related Monthly Adjustment Amount (IRMAA), which is an extra charge added to your premium, as shown in the following table.

Other Medicare Costs

The following out-of-pocket costs for Original Medicare Part A and Part B apply in 2022:

  • Part A deductible for inpatient hospitalization: $1,556 per benefit period
  • Part A premium for those who need to buy coverage: up to $499 per month (most people don’t pay a premium for Medicare Part A)
  • Part A coinsurance: $389 per day for days 61 through 90, and $778 per “lifetime reserve day” after day 90 (up to a 60-day lifetime maximum)
  • Part A skilled nursing facility coinsurance: $194.50 for days 21 through 100 (for each benefit period)
  • Part B annual deductible: $233

Matthew A Treskovich | CFA, CPA/PFS, CITP, CMA, CFP®, AEP®, MBA, CLU, ChFC
Chief Investment Officer

Secure Act 2.0 and What It Could Mean for You

Posted on December 20, 2021 in

Two new pieces of proposed legislation are being considered by the U.S. Government regarding the Setting Every Community Up for Retirement Enhancement Act of 2019, which some are calling the “SECURE Act 2.0.” The House version, the Securing a Strong Retirement Act of 2021, was introduced on May 4, 2021. The Senate version, the Retirement Security and Savings Act of 2021, was introduced on May 20, 2021. While there are many similarities, differences do exist. The SECURE Act 2.0 is extensive and likely subject to change. Here are a few of the highlights that plan sponsors and participants should keep an eye on.

Treatment of Student Loan Payments as Elective Deferrals for Purposes of Matching Contributions

There is identical language in both the House version and the Senate version that states: Employer contributions made on behalf of employees for “qualified student loan payments” are treated as matching contributions if it meets certain requirements. This applies to 401(k)s, 403(b)s, Simple IRAs, and 457(b) plans. A plan may treat a qualified student loan payment as an elective deferral or an elective contribution for purposes of the matching contribution requirement under a basic safe harbor 401(k) plan, or an automatic enrollment safe harbor 401(k) plan, as well as for purposes of the Section 401(m) safe harbors. Employers are permitted to apply the actual deferral percentage (ADP) test separately, to employees who receive matching contributions on account of qualified student loan payments. This provision is scheduled to be effective for plan years beginning after December 31, 2021.

Expanding Automatic Enrollment in Retirement Plans

The House version expands automatic enrollment and automatic escalation in new 401(k) and 403(b) plans by requiring automatic enrollment with a minimum contribution rate of between 3% and 10%, with automatic escalation of 1% per year, up to a maximum of at least 10%, but no more than 15%. This provision would be effective for plan years beginning after December 31, 2022. The Senate version does not include this provision.

Military Spouse Retirement Plan Eligibility Credit for Small Employers

An interesting new provision of this law could benefit military spouses. The Secure Act 2.0 creates a new, nonrefundable income tax credit for eligible small employers that employ military spouses and allows them to participate in the employer’s defined contribution plan. The credit is $250 per employee, plus up to $250 for contributions made by the employer. This applies for up to three years.

Increase in Age for Required Beginning Date of Mandatory Distributions

Both the House and Senate versions contain increases in the required minimum distribution age from the current 72-years-old to a proposed 75-years-old. There is a slight difference between the two versions in that the House specifies incremental increases to age 73 beginning in 2022, 74 beginning in 2029, and 75 beginning in 2032. The Senate increases the age to 75 in 2032 without the incremental steps.

Higher Catch-up Limits

Currently, employees that are age 50 and older, are eligible to make a “catch up” contribution to their 401(k). The limit for 2021 was $6,500. However, under the House’s proposal, workers between 62- and 64-years-old would be able to contribute an additional $3,500 which would increase the catch-up contribution limit $10,000 above the $19,500 for each of those three years. The Senate text would simply lift the additional catch-up contribution limit to the $10,000 limit at age 60.

Exception From Required Distributions Where Aggregate Retirement Savings Do Not Exceed $100,000

Finally, another provision found only in the Senate version states that employees with less than $100,000 in their eligible retirement accounts in aggregate are not required to take required minimum distributions during their lifetime. This does not apply to defined benefit plans. The provision would be effective for initial measurement dates on or after December 31, 2021.

Retirement packages are becoming an essential component for employers to attract and retain employees. It is important to understand the proposed provisions and what impacts it may have on your plan. When implementing a retirement plan, seek the advice from a Fiduciary.

Tamara L Jemison
Retirement Plan Specialist

Year-End Tax Tips

Posted on December 13, 2021 in

The end of the year is a time for celebration and reflection. It’s also the last chance to make some tax moves that could save you money. This week we’ll look at five ways you can reduce next year’s tax bill if you act now.

Defer Income and Accelerate Deductions

Normal year-end tax planning includes looking for opportunities to defer income until next year. This strategy works particularly well if you think you may be in a lower tax bracket next year. For example, you may be able to defer a year-end bonus or delay the collection of business debts, rents, and payments for services. Doing so may enable you to postpone the tax payment on the income until next year.

You might also look for opportunities to accelerate deductions into the current tax year. If you itemize deductions, making payments for deductible expenses such as medical expenses, qualifying interest, and state taxes before the end of the year (instead of paying them in early 2022) could make a difference on your 2021 return.

Make Deductible Charitable Contributions

In most years, deductions for charitable contributions are limited to a certain percentage of your adjusted gross income. The exact limits depend on the type of property you give and the type of organization to which you contribute. For 2021 charitable gifts, the normal rules have been enhanced: The limit is increased to 100% of AGI for direct cash gifts to public charities. And even if you don’t itemize deductions, you can receive a $300 charitable deduction, or $600 if you file a joint return with your spouse. This special deduction is only available for direct cash gifts to public charities.

Bump Up Withholding to Cover a Tax Shortfall

If it looks as though you will owe federal income tax for the year, consider having your employer withhold additional tax from your paychecks before the end of the year. There may not be much time for employees to request a Form W-4 change and for their employers to implement it in time for 2021. The biggest advantage in doing so is that withholding is considered as having been paid evenly throughout the year. This strategy can be used to make up for low or missing quarterly estimated tax payments and can help you avoid tax penalties.

Maximize Retirement Savings

Deductible contributions to a traditional IRA and pre-tax contributions to an employer-sponsored retirement plan such as a 401(k) can reduce your 2021 taxable income. If you haven’t already contributed up to the maximum amount allowed, consider doing so. For 2021, you can contribute up to $19,500 to a 401(k) plan or $26,000 if you’re age 50 or older. The limits for traditional and Roth IRAs combined are $6,000, or $7,000 if you’re age 50 or older. The window to make 2021 contributions to an employer plan generally closes at the end of the year, while you have until April 15, 2022, to make 2021 IRA contributions.

Weigh Year-End Investment Moves

You shouldn’t let tax considerations drive your investment decisions. However, it’s worth considering the tax implications of any year-end investment moves that you make. For example, if you have realized net capital gains from selling securities at a profit, consider offsetting those gains by selling losing positions. Any losses over and above your gains can be used to offset up to $3,000 of ordinary or carried forward to reduce your taxes in future years.

The possibility of tax hikes next year makes these questions more complicated. For now, the best advice is to do your planning for the rules we have now and be willing to adjust your plan if the tax rules change. Many of these tax moves could save you a considerable amount of money next year. The deadline for most of them is December 31st, so don’t delay. If you have questions about whether you are eligible for these deductions, and how they will fit into your financial plan, contact a CPA Financial Planner today.

Matthew A Treskovich | CFA, CPA/PFS, CITP, CMA, CFP®, AEP®, MBA, CLU, ChFC
Chief Investment Officer

The Consummate Advisor

Posted on December 6, 2021 in

The holiday season can be filled with togetherness and relaxation, but it can also be a time to reflect on your financial plan. Have you done everything necessary to start or amend your plan? Did you miss any financial goals you expected to meet this year? Make time this holiday season to reflect on these financial matters. It may be time to find an advisor who can assist you in getting on track.

“More than 1 and 3 Americans have ‘no idea’ how much they need for retirement.” | 2021 Acorns Poll

Inflows and Outflows

Saving starts with looking at what you earn and what you spend. A savings rule of thumb is that you cannot spend more than what you make. Unfortunately, a large percentage of Americans are unable to think long-term vs. the day-to-day, or outside the paycheck-to-paycheck mentality. You can’t reach financial independence successfully if you aren’t sure where your money is going.

Planning for the Future

Retirement savings is simpler now than it used to be just a decade ago. An advisor can maneuver through rules and regulations because they understand the intricacies of a variety of plans and how they operate. Whether an advisor is helping you determine how much you can save, personally or as a business owner, discussing which plan fits your needs is crucial for savings, both for retirement and taxation purposes.

How We Can Help

We encourage you to sit down with your financial advisor; to discuss items like inflows, outflows, workplace retirement plans, estate planning, goal-saving, and specificities on investments. We are actively aware of the market and how it affects a larger picture, your plan.

We take care of your financial plan, so you can focus on what is important to you. It’s our job to know the details and how we can help your reach financial independence. Two of every three Americans have a retirement plan in place, but only 25% of Americans work with an advisor. You may find that seeking a trusted advisor is just what you need to kick start or renew your financial plan. We’re here to help.

Source: FinanceBuzz Retirement Survey, October 2021

Derek M. Oxford | CFP®, AEP®
Financial Advisor

Year-End Charitable Giving

Posted on November 24, 2021 in

It’s that time of year again! The holidays are here, and we should all take a moment to give thanks for our blessings and for the people who are important to us. Many of us will also take this opportunity to help those who are less fortunate. The end of the year is always a great time to make charitable gifts. This year some special tax benefits make charitable giving even better.

Tax Rules for Charitable Gifts

If you itemize deductions, gifts to qualified charities are usually deductible on your federal income tax return. These deductions are subject to some limits. For cash gifts to public charities, the maximum deduction is 60% of your adjusted gross income. Deductions for non-cash donations are limited to 30% of your adjusted gross income. Lower limits for deductions also apply to certain non-public charities and private foundations. Unused charitable deductions can be carried forward.

New Rules for 2021

For gifts made in 2021, special rules make the tax benefits even better. For cash gifts to public charities made this year, the deduction limit has increased to 100% of your adjusted gross income. For those who don’t itemize deductions, last year’s CARES Act provides some help. Individual taxpayers who don’t itemize can still receive a deduction for up to $300 of charitable gifts made in cash. Married taxpayers who file a joint return can deduct up to $600 in cash contributions to charities this year. These special deductions are only available for gifts made in 2021. Be sure to make gifts before the end of the year to take advantage of these special deductions.

If you believe that making a large charitable gift is the right thing to do, don’t let tax rules stop you! For larger gifts, more sophisticated planning strategies are available. If you need help using your wealth to create a charitable legacy, contact a CPA financial planner today.

Matthew A Treskovich | CFA, CPA/PFS, CITP, CMA, CFP®, AEP®, MBA, CLU, ChFC
Chief Investment Officer

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