The Family Love Letter

Posted on November 24, 2021 in

Too many people are left guessing as to their loved one’s final wishes once they have passed. This can lead to disagreements and burden the family with decisions and unnecessary expenses because an estate plan was not put in place. Only one out of three Americans have established an estate plan. To avoid passing intestate (without a will), create or update your estate plan. This will help your family avoid many disagreements and issues. As a result, your passing will be a time of remembrance rather than conflict.



Over 221 million Americans, or 67.1% of the population, die intestate.

What It Means to Be Intestate

Passing intestate means to die without a will or an estate plan in place. If you pass intestate, the court system will decide who will administer your estate and choose your beneficiaries. Only in rare cases does the state get your assets. If you have a will, whoever is assigned as a personal representative will become appointed by the courts upon acceptance through the Probate process. If you don’t want your state to decide how your wealth is handled, consider drafting a will.

How to Get Started

There are a few reasons why many people fail to create an estate plan. The most common are, “I haven’t gotten around to it,” “I don’t have enough assets to leave anyone,” “It costs too much,” or “I don’t know where to go to get a will.” The most challenging part about creating your estate plan is thinking through a series of what-if questions. Your financial planner, along with an experienced estate planning attorney, can make your estate plan seem like a family love letter rather than a stack of legal instruments. If you don’t have a will or haven’t reviewed your estate plan in many years – please immediately reach out to an attorney or your financial advisor.

Use this holiday season to talk about it with your loved ones. You may find yourself cherishing the warm holiday moments even more knowing your legacy will be felt for generations.

Shawn J. McCabe | MBA, CFP®
CPAlliance™ Director

As 2021 draws to a close, retirees need to conduct a year-end financial review. Much of the year-end planning process is the same whether you’re working or already retired including, reviewing income & expenses, insurance coverages, estate planning documents, and potential year-end tax-saving strategies. Reaching retirement age means adding Required Minimum Distributions to the list of things you need to plan for at year-end. Retirement accounts you’ve inherited are also subject to Required Minimum Distribution rules.

What is a Required Minimum Distribution?

Once you reach age 72, you are required to take a determined about of money out of your retirement accounts each year. There are a few exceptions to this rule for retirees. Roth accounts don’t have a required minimum distribution while the original account owner is alive. You don’t have to take money from an employer plan if you’re still working there and own 5% or less of the company.

Your retirement account’s first required minimum distribution can be delayed until April 1st of the following year. After that, required minimum distributions must be taken by December 31st of each year. Delaying your first required minimum distribution could increase your tax bracket in the following year, so it’s important to consider the tax impact before deciding to delay it.

For retirees, the required minimum distribution amount is set based on tables provided by the IRS and your account balance at the end of the previous year. For inherited accounts, the rules are more complicated. Different rules may apply depending on when you inherited the account and what your relationship was to the account holder. If you’ve inherited retirement accounts, seek the advice of a tax planner with expertise in this area.

If you fail to take a required minimum distribution, the tax penalty could be as high as 50% of the amount that should have been distributed. The severe tax penalties make it very important to keep up with your required minimum distributions.

Recent Changes to Required Minimum Distribution Rules

In 2019 Congress passed the SECURE Act which raised the starting age for required minimum distributions.

Previously, required minimum distributions started in the year you turned 70½. Starting in 2020, the age was raised to 72. If you reached age 70½ before 2020, you are currently required to take minimum distributions.

Another important rule change happened in 2020. To help retirees who were impacted by the pandemic, Congress waived required minimum distributions. If you should have taken a required minimum distribution in 2020 and didn’t, the good news is you are not subject to the normal penalty. However, the required minimum distribution rules are in effect for 2021. If you skipped your required minimum distribution in 2020, be sure to take one this year.

If you are retired or have inherited retirement accounts, it is very important to pay attention to the required minimum distribution rules. Proper financial planning can help minimize the tax impact of these distributions. Failing to follow the rules can result in substantial tax penalties. Weigh your required minimum distribution decisions carefully, and when in doubt seek the advice of a competent tax and financial planner.

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

Financial Year-End Checklist

Posted on November 9, 2021 in

Welcome to the final couple of months of 2021! Before we close this year, let’s make sure we optimize your finances with the following checklist. Please, contact your advisor for specific guidance.

1 | Max Out Retirement Accounts

Don’t forget to put as much as you can (up to $19,500 or $26,000 if age 50 or older) into your 401(k) plan. If you plan to fund an IRA or Roth IRA (up to $6,000 or $7,000 if age 50 or older), you have until April 15th, 2022, to make contributions for 2021.

2 | Required Minimum Distributions (RMD)

Unlike 2020, Required Minimum Distributions will not be waived for 2021. If you are subject to RMD’s, remember to take them before year-end.

3 | Qualified Charitable Distribution (QCD)

If you anticipate giving to a charity in 2020, consider a Qualified Charitable Distribution. A QCD is a donation from your IRA directly to the charity of your choosing. If you qualify for a QCD (over the age of 70 ½ with an IRA), consider this strategy vs. paying the charity directly, it may save you a significant amount in tax.

4 | Roth Conversions

If you are retired (or have a low income) and under the age of 72, you may benefit from a Roth Conversion. If you have a funded IRA, this strategy moves funds from a Traditional IRA to a Roth IRA. This transfer is taxable, with the idea that we intentionally pay a lower tax rate “now” for the benefit of tax-free growth moving forward. It also will lower your future RMD amount.

5 | Tax Loss Harvesting

If you have a taxable capital gain in 2021, you may consider selling a position at a capital loss to offset the gain. However, this example only works if the asset you are selling should be sold! The strategy is to accelerate the loss before year-end to offset the capital gain that occurred in 2021.

6 | Gifting/Donation

Gift | If you plan to give money to an individual (not a charity) up to the $15,000 gift tax exclusion. Remember to do so before the end of the year. You can still make the gift next year, but you will be utilizing next year’s exclusion.

Donation | Keep your receipts for 2021 donations to charity. You may be able to take a $300 deduction ($600 if married filing joint) next tax season.

7 | Check your Federal Withholding

Look at your most recent paystub and perform a quick analysis to determine if you are withholding enough. This practice is good to do now, so you can estimate if you will owe on April 15th, 2022.

 8 | Keep Supply Shortages and your Budget in Mind

The holidays are stressful! With the current supply shortage and an increase in demand, you may find that the specific toy your child wants is not in stock! Remember, shop a bit sooner this year, and stick to your holiday budget!

Sterling J. Searcy, Jr. | CPA
Financial Advisor

While Congress continues to debate and negotiate tax legislation, retirement savers still have an opportunity to take advantage of certain tax strategies that could soon disappear. One provision that is very likely to be eliminated is the back-door Roth IRA. This strategy allows high-income earners to create tax-free retirement income. The next few months could be the last chance for some taxpayers to use this powerful strategy.

What is a Roth IRA?

Roth IRAs were created in 1997 as an alternative to the traditional, tax-deductible IRA. Unlike traditional IRAs, there is no immediate tax deduction for making a Roth contribution. However, funds contributed to a Roth can be withdrawn at any time without penalties. Earnings withdrawn from a Roth are tax-free as long as the account has been open for five years and the account owner is over age 59 ½. Roth earnings can also be withdrawn tax-free in the event of death or disability. Up to $10,000 can be withdrawn tax-free for a first-time home purchase. The combination of tax-deferred growth and tax-free withdrawals makes Roth IRAs a powerful wealth-building tool.

Limits and Loopholes

The legislation that created Roth IRAs contained provisions to limit the use of these accounts by high-income earners. In 2021, most taxpayers can contribute up to $6,000 to an individual retirement account. This can be a Roth contribution, a traditional contribution, or split between the two types of IRAs. An additional $1,000 contribution is allowed for savers who are 50 or older by December 31.

However, these limits are reduced or eliminated for taxpayers with income over certain limits. Single taxpayers who earn over $125,000 have lower contribution limits, and for those with income over $140,000 no contribution is allowed. For married taxpayers who file a joint return, contributions are limited starting at $198,000 of income and phased out completely at $208,000 of income. The income used for these tests is called Modified Adjusted Gross Income, or MAGI. Ask your tax advisor if you’d like to learn more about how MAGI is calculated.

In 2005, Congress created a loophole allowing high-income taxpayers to work around these limits. The loophole, which eliminated income limits on Roth conversions, became effective in 2010. Conversion is the process of turning a traditional IRA into a Roth IRA. Deductible contributions and earnings in the traditional IRA are taxable on conversion.

The 2010 rules created a new strategy: high-income individuals could make full, annual, nondeductible contributions to a traditional IRA and convert those contribution dollars to a Roth. If the account holders had no other IRAs and the conversion was executed quickly enough so that no earnings were able to accrue, the transaction could potentially be a tax-free way for otherwise ineligible taxpayers to fund a Roth IRA. This loophole became known as the back-door Roth IRA.

The back-door Roth works best for savers who do not have traditional IRA balances. However, there are some advanced strategies that can create the opportunity for a back-door Roth even if you have existing traditional IRA assets.

No one knows how or when Congress will settle debate and pass new tax legislation. The current proposals would end the back-door Roth IRA strategy after December 31, 2021. For high-income taxpayers, the next few months may be the last opportunity to use the back-door strategy. The back-door Roth process can be complicated, especially if you have existing traditional IRAs. Seek the advice of an experienced tax and financial advisor for more information.

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

It all started with small changes in the way Jane acted around her family and friends. She became distant and disinterested in many of the relationships and activities that typically filled her life with joy. As time went on, she dropped out of social gatherings and hid inside her condo, only emerging to go to the grocery store or to pick up packages delivered to her front porch. Jane was a victim of financial exploitation and she felt embarrassed that she fell for the scam and didn’t want anyone within her family or her friend group to know she could be taken advantage of. To avoid awkward questions, she withdrew from family and friends. To recover financially on a fixed income, she hunkered down and tried to adjust to her more limited means.

What forms does financial exploitation take and how would you recognize it?

People, regardless of their age, income, educational levels, or social status can be victims of financial exploitation. Older adults are more often targeted due to their regular income and accumulated assets. However, their monthly income may be a fixed amount and if they suffer a loss through financial exploitation, the impact on their lives will be great. Financial exploitation can take many forms:

1. Scams of all varieties

    • lottery/sweepstakes scams
    • romantic (virtual or local)
    • charity
    • contractor
    • income tax and more

2. Abuses by family members, neighbors, or caregivers

According to the Consumer Financial Protection Bureau, only 1 in every 44 cases of elderly abuse is reported. The dollar value of this financial exploitation amounts to more than $36 billion annually. Many older adults do not report this exploitation because they are embarrassed, they fear being seen as incompetent, and do not want to destroy relationships with family members, neighbors, and caregivers.

An example of financial exploitation of the elderly can be the theft of property by family, friends, contractors, and caregivers over time. Another example could be an agent with legal power of attorney misappropriating financial resources for their use and not for the benefit of an elderly person. Sometimes the people closest to the elderly are the ones who prey on them.

How to Respond to Financial Exploitation of the Elderly

If you see or think a crime is being committed, call the non-emergency number of your local police and report it. If you suspect abuse or financial exploitation, you should report it to the Florida Division of Children and Families – Adult Protective Services. There is a reporting hotline and weblink for this office, by county, in the state of Florida. If this occurs in another state, there are similar offices in every state. Financial scams should also be reported to the Florida Attorney General’s Office where there is an interagency team to protect older Floridians from financial exploitation through scams. It is called The Senior Protection Team – Florida Attorney General.

Financial exploitation of the elderly is a problem we should all be watching for. Maintaining open and honest communications with our elderly friends and family could open the door to them sharing this type of abuse with you. Being respectful of the older adults’ concerns and engaging with the financial exploitation problem can help protect everyone from further abuse.

Tom A Gruber | CPA/PFS
Financial Advisor

Medicare Open Enrollment is Here

Posted on October 19, 2021 in

The annual Medicare Open Enrollment Period began on October 15th. Every year, Medicare plans get updated with new costs and coverages. If you are on Medicare, it is important to review your plan and make sure it still matches your healthcare needs. During the Open Enrollment Period, you can change your Medicare health and prescription drug plans to ones that better suit your needs.

Types of Medicare Plans

Original Medicare consists of two elements: Part A, which covers hospital care, and Part B, which covers physician and outpatient services. Part A and Part B do not cover most prescription drugs. Medicare Advantage plans are an alternative to the traditional Part A and Part B coverage. Medicare Advantage plans are offered by private insurers and cover everything that is included in traditional Part A and Part B coverage. Medicare Advantage plans can provide coverage for services beyond what is included in Original Medicare. Most Medicare Advantage plans also include prescription drug coverage.

Considering Your Options

During Open Enrollment, your options include switching between Original Medicare (traditional Part A and Part B coverage) and Medicare Advantage plans. If you are enrolled in a Medicare Advantage plan, you have the opportunity to switch to a new plan, or to change your Medicare Advantage prescription drug coverage.

If you don’t have a Medicare Part D prescription drug plan, you can join one during Open Enrollment. You also have the option to change your prescription drug plan or drop them entirely.

Now is a good time to review your current Medicare benefits to see if they’re still right for you. Are you satisfied with the coverage and level of care you’re receiving with your current plan? Are your premium costs or out-of-pocket expenses too high? Has your health changed? Do you need medical care or prescription drugs that would be more affordable under a different plan? If your current plan doesn’t meet your healthcare needs or fit your budget, now’s the time to switch to a new plan. The Open Enrollment Period ends on December 7th, so don’t delay.

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

Looking at retirement from a wide view, we find the root concern for most individuals centered around three key questions: Do I have enough money to retire? Will I outlive my money? What happens to my money after my passing? Digging into these questions we find the answers through investments, taxes, social security, estate planning, and insurance. Answering these questions should provide individuals and families with the peace of mind needed to enjoy their life, but it’s often very easy to be sidetracked especially with what may happen in the market from time to time.

For example, let’s look back over the past month. September was a volatile month with the market pulling back a few percentage points. There were news headlines about a government shutdown, a looming debt ceiling deadline, a default of a property developer in China, and continued effects from Covid. Talking heads went wild with the volatility and questioned the stability of the economy. Furthermore, news articles were written comparing the events in China to bank defaults in 2008. In contrast, very few articles were written about this being the first 5% pull back in a year. Almost no one pointed out that these pullbacks are healthy for the market and that they allow for excesses to be removed before bubbles can form. Those data points don’t sell as many commercials but are much more important. Here are a few other things to keep in mind when the market has volatility:

  • Markets average a 14% drop from a high annually, and daily dips of more than 2% occur about five times a year
  • Markets drop 30% from a high about every five years
  • Over the past 75 years we have seen 12 recessions, 14 bear markets, and 26 market corrections, yet the market is still setting new all-time highs

Volatility is normal, and it’s healthy. Unfortunately, that doesn’t mean it can’t be distracting when it occurs. Remember, the markets rise almost three out of every four years, but which years are ahead of time? Trying to time the market is a loser’s game and leads to buying high and selling low which destroys wealth. It’s important to turn the TV off and focus on the plan developed to answer the first three questions: Do I have enough money to retire? Will I outlive my money? What happens to my money after my passing? If you need help answering these questions, contact your financial advisor at CPS to bring these questions into focus.

Eric J Jackson
Financial Advisor

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