Category Archives: Finance

Should You Know About Tax Checkups You Can Do Any Time of Year

The first quarter of the year may be the height of tax prep activities for many business owners, but you shouldn’t only be thinking about your taxes right before the April 15 deadline. Day-to-day decisions can have a significant impact on your overall tax obligations, so you should be planning throughout the year to make sure you’re ready.

“When a small business owner plans for tax season strategically and consistently throughout the year, they can create a much better financial outcome for their company,” Jamal Ayyad, vice president of service delivery for SurePayroll, said in a statement.

Whether you’re preparing to file your 2016 tax return or you just want to plan smart for the current year, here are six “checkups” you can do to make sure you’re always on top of your taxes.

1. Ensure that ownership records and hiring/employment practices are up-to-date
In order to guarantee that your business is complying with guidelines that are constantly changing, plan regular reviews of documents and applicable rules, said Scott Augustine, a shareholder with Chamberlain Hrdlicka law firm.

2. Calculate your projected payroll taxes
Small businesses that are having trouble paying their payroll taxes may be able to take advantage of an IRS installment plan, Ayyad said. If you owe less than $25,000 in combined tax, penalties and interest, and filed all required returns, you may be eligible. Visit the IRS website for more details.

3. Do a compliance checkup
The Affordable Care Act, the IRS and the U.S. Department of Labor have rules regarding independent contractors or 1099 employees. Make sure your firm or organization operations are in compliance to avoid costly penalties and fees, Augustine said.

4. Keep up with your home state’s tax issues
Some states take loans from the federal government to meet unemployment benefits liabilities. Ayyad noted that if your state has taken, but not repaid those loans, there will be a reduction in the credit against the Federal Unemployment Tax Act tax rate. This means employers in those states will have to pay more. A number of states may be affected, including Arizona, Arkansas, California, Connecticut, Delaware, Indiana, Kentucky, New York, North Carolina, Ohio, Rhode Island and South Carolina, as well as the U.S. Virgin Islands.

5. Review non-competes and confidentiality agreements
This is especially important for those that have been written by attorneys outside your state of operation to avoid possible theft of important assets, Augustine said. As part of this, he also advised reassessing document-retention policies to make sure they balance exposure with business needs. This will help you avoid issues in tax matter and litigation, he said.

6. Think about succession planning
What would happen to your business if you had an unexpected health crisis or accident? Augustine said business owners should be discussing and determining what actions may need to be taken to ensure the firm continues on. There are also tax benefits to succession planning, so discuss with both your attorney and your accountant, he added.

Organizing tax records now can make filing taxes much easier and faster later on, Ayyad said.

“When small business owners get their information together well ahead of time, they greatly improve the odds of filing a complete and accurate return,” he said. “Being compliant is the law, but instead of merely checking taxes off of a list of things to do at the end of the year, a savvy small business owner knows that preparation and planning ahead are key components of success.”

Tips to Find a Financial Advisor or Planner

Do I need a financial advisor or financial planner?’

If it’s ever occurred to you how complex and vital ‘getting it right’ is when it comes to saving, investing, maximizing the value of your wealth and planning for a safe, comfortable retirement, you’ve probably asked yourself that question.

Similarly, if you’ve felt the pressure of deciding on a big investment, such as a home or education, or felt overwhelmed with the financial details after a wedding, the birth of a child, divorce, death of a spouse or major illness, you’ve probably wondered about finding someone to advise you.

But according to at least one survey, over a third of Americans don’t have a good understanding of what a financial advisor actually does. That figure balloons to 46% for Milennials.

So what kind of services do financial advisors and planners provide? Broadly, they can help you manage your financial life using a variety of strategies and products to both manage your wealth and improve your financial habits. That’s the short, easy answer; you’ll have to read on for more detail.

Not all financial advisors are the same; some specialize in certain practice areas, types of clients, strategies and products. Some work with clients all over the country; others just focus on clients their own town. Some can help you with your taxes or estate planning; others will simply focus on retirement planning. Some focus on younger client; some just on retirees. Some even focus only on widows. As you can see, there’s probably an advisor out there that fits your needs perfectly.

You may need an advisor for many reasons. For example, perhaps you just received a considerable sum of money from a relative who died. Perhaps you just had a baby, and want to ensure its future in case the worst happened. Perhaps your company is offering a too-good-to-resist early-retirement package, and you want to make sure the money lasts. Any of these events (and many others) could naturally trigger the desire for some professional help in managing your financial affairs.

How to Find a Good Financial Advisor
How should you go about finding the right advisor? The first step is to figure out what sort of professional help you need. Like many people, some of your deepest financial thinking comes at tax time. So if you just want someone to dole out tax advice and preparation, a good old certified public accountant (CPA) will probably suffice. That CPA may or may not also be a financial advisor.

But say you’re looking for help in creating a savings plan, devise investment strategies for your investment portfolio, help you get out of debt and start saving for a house – in short, if you want someone to look at your entire situation, you should seek the help of a comprehensive financial planning firm or an individual financial planner. Firms typically have a staff of professionals that includes an insurance agent, tax professional, estate planner and financial advisor. Solo-practitioner financial advisors or planners may not be able to provide you with a full range of services that a firm can, but many leverage technology, such as automated investment platforms or robo-advisors, to help with financial planning, asset allocation, risk management, saving and more.

Next, starting for referrals from colleagues, friends or family members who seem to be managing their finances successfully. Another avenue is professional recommendations. A Certified Public Accountant (CPA) or a lawyer might make a referral. Professional associations can sometimes provide help. These include the Financial Planning Association (FPA) and the National Association of Personal Financial Advisors (NAPFA).

Evaluating an Advisors Credentials and Certifications
Unfortunately for the general public, the education standards for financial advisors are very minimal. Anyone can call him or herself a financial analyst, financial advisor, financial planner, financial consultant, investment consultant or wealth manager, warns the Financial Industry Regulatory Authority (FINRA). In fact, an individual could drop out of high school, rent some office space, pass a FINRA general securities exam and be selling stocks all within a couple of weeks. While exams such as the Series 6, 7 and 63 satisfy the industry regulatory requirements, they do not offer the advisor experience when it comes to real-life situations.

The financial industry is also rife with professional designations, many of which can be obtained with little or no effort. However, it does have three leading certifications that have educational and ethical requirements:

A Chartered Financial Analyst (CFA) has a wide range of expertise in securities, financial analysis, investing, portfolio management and banking. The testing regimen for this certification is long and rigorous.
A Certified Financial Planner (CFP) must hold a bachelor’s degree and must have completed “a college-level program of study in personal financial planning, or an accepted equivalent”; in addition, a CFP has booked at least three years of industry experience and passed a series of comprehensive tests, and abides by a code of ethics and meets continuing education requirements. You can check the CFP Board’s website to verify that your advisor or financial planner belongs to this group.
A Chartered Financial Consultant (ChFC) holds a certificate, which uses the same core curriculum of the CFP, but does not require a comprehensive board exam and does not require that he or she abide by a code of ethics.
The latter two are often considered best for creating a general financial plan. If you are looking for someone with more of a retirement focus you may want to seek out a Chartered Retirement Planning Counselor (CRPC), who has completed intensive training in retirement planning through the College for Financial Planning. If your concerns dominated by taxes, try a Personal Financial Specialist (PFS) who is a CPA but has also undergone additional education and testing, thereby offering more expert financial planning qualifications. For insurance and estate-planning matters, you might want an advisor who has attained mastery as a Chartered Life Underwriter (CLU).

Choosing a Financial Advisor You Can Trust
Although most of the big retail brokerages offer financial planning services, be cautious with their personnel. While many are highly trained and can be trusted, others may just be glorified stockbrokers hired by large wire houses to sell proprietary mutual funds and stocks. They are incentivized, sometimes even required, to push these products, which are owned by their firm – and for which they receive top commissions. And with some wire houses, it’s all about quantity, not quality: The more buying and selling that a broker does in an investor’s account, the higher his commission payouts.

If you’re looking for someone a little different than the everyday stock jockey, it may be wise to hire a registered investment advisor (RIA) or Investment Advisor Representative (IAR). They are held to a higher degree of accountability than most brokers, and you’ll typically find them the most knowledgeable. They are also required to provide to all potential investors upon request a Form ADV Part II, a uniform submission used by advisors to register with state regulators and the Securities and Exchange Commission (SEC). This is your opportunity to learn about your advisor, so make sure you use it. Among other things, this will allow you to determine whether your advisor has ever applied for personal bankruptcy (“Do as I say, not as I do” is not exactly the sort of philosophy you want in a financial manager).

You can check on any regulatory blemishes on the advisor’s record at FINRA’s broker check site. One thing to keep in mind, however, is that an isolated complaint or infraction does not necessarily mean that the planner is dishonest or incompetent. Any charge brought against a broker or planner will go on the person’s record, regardless of whether the planner is in the right. But if the record shows a long-term pattern of violations, customer complaints or charges of a serious nature, then you should probably find someone else.

Whatever sort of services you need, make sure that advisor is held to fiduciary standards, which charges him or her with the responsibility of acting in the best interests of an investor. In the investment world, RIAs are required to abide by a fiduciary standard; stockbrokers generally just have to abide by a less-rigorous suitability standard (though the Department of Labor’s new Fiduciary Rule, scheduled to be phased in starting in April 2017, greatly expands the types of professionals who are expected to comply with fiduciary standards; see DOL Fiduciary Rule: Everything You Need to Know). Registered investment advisors are either registered with their state of residence or the SEC; they are regulated under the Investment Advisors Act of 1940. If you can find an independent RIA, you also won’t have to worry about paying high commissions on proprietary products.

Questions to Ask a Financial Advisor
Once you’ve identified a firm or individual to work with, make sure you understand all of the services that are available. At a minimum, consider the following:

Will it track your investment cost basis for you?
Can it file your tax return and help you with other tax related questions?
Does it look at insurance products? (i.e. life insurance, long-term care, annuities, etc…)
Can it help you plan your estate?
Will it refer you to another professional if the firm cannot provide the service itself?
Is there a succession plan, in case something happens to your advisor?
Working With a Financial Advisor
It’s also good to ascertain if your situation is typical of the advisor’s client base. For example, if you are a corporate employee looking for help planning for the exercise of your stock options, you should ask the advisor about their knowledge and experience in dealing with clients like you. A financial advisor who deals primarily with clients at or nearing retirement might not be a good choice for you if you are a 30-year-old professional looking for a financial plan.

It’s also important for clients and perspective clients to understand how their financial advisor communicates with clients and the frequency of those communications. How often will you meet to review your portfolio and your overall situation? Quarterly, semiannually, annually or as needed? Will these meetings be done in person or perhaps over the phone or via a service like Skype? It’s becoming more and more common for clients to work with their financial advisor remotely.

Additionally, does the advisor typically communicate by phone, email, or perhaps text message? Any or all are fine and both your preferences and the advisor’s may be based on your age and digital comfort level.

Fees or Commissions?
There is one more key question to ask an advisor: How are you getting paid?

Compensation generally falls one of two categories: fee-based and commission based.

A fee-based structure can be hourly, project, retainer or a flat ongoing amount that is derived from the percentage of assets being managed; usually, the greater the assets, the lower the percentage. Commission-based means the advisor charges a straight commission every time a transaction occurs or a financial product is purchased.

Fee advisors claim that their advice is superior because it has no conflict of interest. Commission-based compensation, they argue, can compromise an advisor’s integrity, affecting the selection or recommendation of products (some companies might compensate the advisor better than others). In return, commission advisors respond that those who get paid based on their assets under management (AUM) are more likely to recommend financial strategies that increase their AUM, even if they aren’t in your best interest, and that commissions keep their services affordable (though the costs of these commissions are born by you the investor and serve to reduce your returns).

Each year, more investors are shifting from the traditional commission setup and moving towards the modern fee-only approach. Because set fees are new to many investors, some common questions have risen, such as: “What is a fair fee?” and, “How will I be billed?” With the average mutual fund still charging an expense fee of approximately 1.4%, it’s safe to say that a total fee of 1.8% to 2% is fair. If you can find an advisor that can package an investment program that includes the cost of the investments, trading, custody and the advisor’s professional services for 1.8% or less, you’re getting a sweet deal. Most fees are now billed quarterly, so you’ll need to know whether they will be pulled in advance or in arrears.

A combination of payment methods may also occur. Before you sign on to work with an advisor, you should make sure that the rates, fee structure and commission schedule are clearly laid out (preferably in writing, as RIAs are required to do by law) so there are no surprises later.

Tips for Student Debt Imperils Retirement Savings

You can add retirees and retirement savers to the growing list of Americans who must tackle the rising amount of student debt as they try to save for retirement. There is now more student loan debt than credit card debt, and this trend doesn’t seem to show any signs of slowing. Even more disturbing is the growing number of retirees who still carry student loan debt. Those who face this dilemma are at an increased risk of not only outliving their assets, but also facing a shortfall in their retirement savings as they are forced to put more money towards debt payments.

Retirees Have More Student Loans Than Ever
A 2017 report from the Consumer Financial Protection Bureau (CFPB) showed that borrowers over age 60 carry about $66.7 billion in student loan debt. Back in 2005 over 700,000 senior households were responsible for student loan debt, but that figure quadrupled by 2017 to 2.8 million people. And according to the CFPB, this age cohort is growing the fastest when it comes to segments of the population with student loans to pay off. Student debt among retirees may be left over from efforts to finance their own education, but many people are also taking on debt to provide an education for their children or grandchildren.

Also worrying is the fact that senior borrowers are much more likely to default on their loans than younger households. Just over 10% of borrowers ages 25 to 49 default on their loans. The default rate for seniors is 27% and over 50% for borrowers age 75 and above. And those in this category who default on their loans may find themselves facing a difficult dilemma.

The federal government has the authority to collect unpaid loan payments after 425 days from the due date by seizing tax refunds or garnishing wages or other income. Social Security benefits can also be garnished with short notice to the debtor. And this type of offset has grown by an astonishing 500% since 2002, with the number of garnishments rising from about 6,000 to 36,000 in 2013. The amount that can be garnished equals the lesser of the excess above $750 or 15% of the monthly benefit, but that can be enough to substantially disrupt the budgets of many senior households. This can also severely impact their credit scores, which can prevent them from saving money by refinancing their homes or consolidating their debt.

Starting out With Student Loans
College graduates who start with large student loan balances can also handicap themselves financially. Although this is often unavoidable, large loan payments can deprive young borrowers of the ability to begin saving for retirement and buying a house. And, of course, this is the best time for them to do this because their plans and accounts will have decades to grow. Although student loans may be a student’s only alternative when it comes to paying for college, they come with a high opportunity cost that can stretch out over their lives.

The Center for Retirement Research at Boston College has created a mathematical measure that quantifies how well Americans are prepared for retirement called the National Retirement Risk Index (NRRI). This index uses information culled from the Federal Reserve’s survey of consumer finance. The information reveals that the average household carried about $31,000 of student loan debt in 2013, and just over half (about 56%) of all Americans have a substantial chance of running low on funds during retirement. While this finding does not create a definitive lineal relationship between student loan debt and retirement security, the financial effect of making student loan payments for 20 years after graduating from college can be easily seen.

For example, a college graduate who owes $60,000 in student loans at 3% interest will have to pay $332.76 per month for 20 years to get that paid off. If that amount was instead diverted into a Roth IRA that grows at 6% for that same time period (with no further contributions after 20 years), then the student would have almost $600,000 of tax-free money by age 65. No poll or study is necessary to see the enormous impact that student loan debt can have on a borrower’s retirement preparedness.

The Reasons Why Investors Need to Focus on the Long Term

One of the biggest differences between individual investors and professional portfolio managers is how they view performance. Individual Investors tend to overvalue short-term performance, placing too much emphasis on one, three and five-year returns. Professional portfolio managers place most of their analysis on seven to 10-year periods, since they coincide with a full market cycle. This is a marked difference and it can greatly change long-term results. To view how significant the differences can be, let’s take a look at 20 years of past performance.

Short-Term Performance
We will start by looking at the diversification chart below, which shows how various asset classes have performed. (The S&P 500 is represented by the category large growth stocks). Notice that over the short-term, during 1995-1999, the large growth stocks category grew approximately 38%, 23%, 36%, 42% and 29% per year. Monetarily, if you had invested $100,000 in 1995, by the end of 1999 you would have had $407,078. Many individual investors reaped such rewards and in 1999 they focused on the previous one, three and five-year time periods, making their performance look stellar, which enhanced their investing conviction and increased their expectation of their future results.

However, the years ahead, 2000-2002, proved to be quite a different story. The $407,000 that was earned during the previous five years would lose $226,000 during the next three years to become just $181,000 by the end of 2002. While this is just one simple example, you can run such analysis over many three to five-year periods which will yield similar results. What this tells us is that paying too much attention to short-term performance can skew your long-term investment strategy, which can lead individual investors to overvalue “trendy” asset classes, therefore increasing their risk and reducing their return.

A Closer Look
Let’s dig a big deeper into the 1995 to 2002 story to see how choosing a proper time period for performance evaluation can influence results.

Below is a chart of the tremendous short-term performance of the S&P 500 during 1995-1999. The blue is the S&P 500 and the red line is a multiple asset class portfolio consisting of U.S. and foreign equity, U.S. and foreign bonds, commodities, real estate, precious metals and natural resources. As you can see, the S&P outperforms the globally diversified portfolio 241.61% to 86.66%, leading many to claim in 1999 that diversification was no longer necessary.

However, long-term investing is not a five-year story, so let’s look at how the two investing styles faired when we add a few more years of data. During 2000-2002, the S&P lost -37.16%, while the globally diversified multiple asset class portfolio actually grew 15.10%. Maybe asset class diversification isn’t dead after all.

Global Diversification
Let’s put all the data points together and see what we get. Over the entire time period, from 1995 to 2002, the globally diversified portfolio outperformed the S&P 500 107.66% to 86.12%. Further, the globally diversified portfolio accomplished this using much less risk and with much less volatility. As you can see, the performance of a portfolio can significantly change when viewed over the proper time period. When individual investors focus on one, three and five-year time periods, they are prone to basing decisions off of incomplete data.

To further illustrate this point, let’s look at how the S&P 500 would have fared against a globally diversified multiple asset class portfolio from 1995 until today. The data below teaches us an important lesson. The diversified portfolio returned 578.69% (with much less risk and volatility) while the S&P 500 returned 343.08%. But like today, many investors during the bull markets of 1995-1999 lost their way and traded in a prudent long-term strategy for short-term mania. This caused many individual investors to take on excess risk while simultaneously suffering long-term under-performance.

What’s most fascinating is that you can repeat this study, using just about any set of 15-year data and the results will look very similar. This evidence showcases the wisdom of globally diversified investing and it’s what makes the mindset of the professional portfolio manager much different than that of the individual investor. It’s this mindset that ultimately leads to the success of the long-term approach, even in the face of short-term uncertainties. So the next time you are tempted to analyze your investment strategy using a one, three or five-year approach, be sure that you put those results in their proper context before making any long-term strategic decisions.

Tips To Cover Your Assets With Life Insurance

Life is full of events—planned and unplanned, good and bad—that can have a major impact on our lives, financial plans and budget. Few events, though, will have more of an impact on a family than the death of a loved one. I cannot tell you how many people I have written life policies for that initiated them because they know someone who lost a loved one who was uninsured and now the survivor is scrambling to cover funeral expenses while trying to figure out how they will survive without the deceased’s income and presence. Not only is there an immeasurable emotional toll, but the financial impact can also be just as devastating. That’s why it’s so important to cover your assets. (For related reading, see: 5 Ways to Make Sure You’re Not Over-Insured.)

How to Protect Yourself
One of the most effective ways to cover your assets (family and finances) is to acquire the right type and amount of life insurance. Many of us don’t like to think or talk about death. Let’s face it … it is an uncomfortable topic so we sweep it under the rug or put off that sort of planning. Discussing mortality isn’t pleasant, but it is one the most important aspects of financial planning and shouldn’t go unexamined.

Approximately 35% of American families are headed by a single parent and 72% of black families are single-parent families. I am included in those statistics. I have custody of my daughters, so what if I passed away? How would my family continue to maintain and survive without me? Married couples and significant others share a similar dilemma. Let’s take a look at the different types of life insurance and how having it can help us during one of life’s most emotional times.

The easiest and most cost effective type life insurance to acquire is group insurance that is provided by an employer’s benefits package. Typically, it costs a few dollars per pay period and is a multiplier of one’s annual salary or income. For example, if I made $50,000 a year, I could elect coverage at my salary or pay incrementally more for twice or three times my salary. The downside to group insurance is that it goes away when we leave our employer. Some group policies are transferable when we separate from an employer, but it becomes at a much higher cost because it is then based on one’s individual age and health status.

Another form of protection is individual term life insurance, which is probably the most practical and cost-effective way to acquire life insurance. Term insurance is purchased to cover us over a certain period of time, for example for 10, 20 or 30 years. With term insurance, the cost, or premium, is based on one’s age and health status, but in most cases it can easily fit into your budget. The younger you are, the cheaper all life insurance is to buy, especially a term policy. So, if you are in your mid-20s to early 30s and don’t currently have a term policy, then this should be high on your list of priorities.

Whole or Permanent Life Insurance
Another form of life insurance is whole or permanent life. These policies are much more costly, especially if you look into getting a policy when you are older, but this type of policy is meant to cover you for your entire life. An added bonus is they have built- in living benefits, such as cash value. As you pay your premiums, equity builds up within the policy, similar to equity building in a home as you make your mortgage payments. So you are able to tap into the cash value for emergencies or as needs arise—similar to a line of credit—as a living benefit.

Ideally, I suggest having both a whole life and term policy concurrently when you are younger and have a young family. You would employ a larger amount to cover things like future college costs, income replacement for a surviving spouse or significant other and possibly pay-off a mortgage. To complement the term policy, you could have a smaller $50,000 to $100,000 whole life policy. This is beneficial because the whole life policy is still yours 40 years later; it’s there to cover one’s final expenses. By then, the kids are grown and gone, home is paid for and you have savings accumulated for the survivors.

We spend our entire working lives earning and saving money, investing for different goals and hope to leave a legacy for our children. One of the worst things we can do is to risk losing our hard work by not insuring or under-insuring ourselves, leaving our families behind to struggle financially on top of the emotional scars. You want to make sure you are protecting your loved ones sufficiently by covering your assets.

Should You KNow About Six Things Bad Financial Advisors Do

A good financial advisor can add tons of value to your financial well-being and can enhance your quality of life. “Good” can be a subjective term, in this case good denotes someone who is qualified to help you and whose personality gives you the confidence to follow their advice.

In evaluating the latter, here is a list of six things financial advisors do that might mean that they’re not the right advisor for you.

They Ignore Your Spouse
While this can occur with both male and female advisers and the ignored spouse can be either the husband or the wife, most accounts of this type of behavior tend to be with male advisers all but ignoring the wife. There have been several accounts of widows leaving the adviser who served them while married for just this reason. If you are working with an advisor who ignores you, insist to your spouse that you switch advisors, any advisor worth their salt should be upfront that he or she serves the interests of both spouses equally.

They Talk Down to You
Not all clients are financially sophisticated, or for that matter, even take an interest in their financial affairs. Still, it’s the duty of the advisor to explain to you why he suggests a certain course of action or a particular financial product in a fashion that makes sense to you. If this isn’t the case be assertive or switch advisors and never let anyone you are paying talk down to you or make you feel stupid.

They Put Their Interests Before Yours
This is perhaps most common in dealing with financial advisors who are compensated all or in part via commissions from the sale of financial products. Are they recommending mutual funds, annuities, or insurance products that pad their bottom line but might not be the best product for you? You need to ask questions and understand how your advisor is compensated and if this results in conflicts of interest for them in advising you.
They Won’t Return Your Calls or Emails
A good financial advisor is probably busy, but if you are not important enough to them to rate a response in a reasonable amount of time this isn’t right. While most advisors can tell a story about a client who calls every day my experience is that most clients make reasonable requests and deserve a prompt reply to their questions. If someone who you are paying to provide you with financial advice won’t reply to your calls why keep paying them?

They Suggest That You Don’t Need a Third-Party Custodian
Can you say Madoff? If you ever find yourself in a meeting with a financial adviser who suggests that you shouldn’t have your account with a third-party custodian such as Fidelity Investments, Charles Schwab Corp. (SCHW), a bank, a brokerage firm, or some similar entity your best move is to end the meeting, get up, and run (don’t walk) away. Madoff had his own custodian and this was a centerpiece of his fraud against his clients. A third-party custodian will send statements to you independent of the advisor and usually offer online access to your account as well. Ponzi schemes and similar frauds thrive on situations where the client lacks ready access to their account information.

They Don’t Speak Their Mind
An important aspect of a healthy client-financial advisor relationship is honest and open communication. This goes both ways. Clients might express a desire to make a particular financial move or to invest in a particular stock or mutual fund to the advisor. A good advisor will tell the client if he disagrees with this suggestion if that is the case and the reasons why they disagree. To not do this is doing the client a huge disservice. At the end of the day it’s the client’s money and they can do with it what they wish. But a good financial advisor will never tell a client what they want to hear just to keep earning fees or commissions from them.

Tips For Retirement Saving

Regardless of whether you’re 25 or 55, saving for retirement is a wise financial strategy. Everyone will face retirement at some point, either by choice or necessity. Whether you are on track for retirement savings or need to play catch up, or you’re a financial advisor who wants to give clients a leg up on preparing for their later years, these eight essential tips for retirement savings will put more money in your account.

1. Grab the 401(k) or 403(b) company match.
If your workplace offers a retirement plan and a company match, you should contribute up to the amount that the company kicks in. Let’s say that José’s company contributes up to 5% of his salary and matches every dollar he puts into his workplace retirement account. If José doesn’t add his 5% to the pool he misses out on free money. José earns $50,000 per year. By investing at least $2,500 into his 401(k), he automatically gets a $2,500 bonus from his employer, along with important tax benefits.

For the greatest retirement benefit, contribute up to the maximum amount allowed by law to your retirement savings plans. Start now for the greatest financial benefit.

2. Claim double retirement plan contributions.
A little known retirement savings opportunity allows some teachers, healthcare workers, public sector and nonprofit employees the opportunity to contribute twice as much to retirement plans. These workers can add $18,000, the maximum amount (in 2016) to a 403(b) and up to $18,000 to a 457 retirement plan. That’s a total tax advantaged savings amount of $36,000 in one year.

3. File for Uncle Sam’s retirement savings credit.
If you are a middle- or lower-income taxpayer, you may claim a tax credit for up to 50% of your retirement plan contribution. If you are married and filing jointly with adjusted gross income of $61,500 or less (in 2016), and you contribute to a qualified retirement plan, you may be eligible for a tax credit.

The maximum credit amount per couple is $4,000 and $2,000 for an individual, depending upon your contribution amount and income.

4. Use the back door Roth IRA as a way to increase retirement savings.
If your current income is too high and makes you ineligible (for 2016: married filing jointly – $194,000; single – $132,000) to contribute to a Roth IRA, there’s another way in. First, contribute to a traditional IRA. There is no income ceiling for contributions to a non-deductible traditional IRA. After the funds clear, convert the traditional IRA to a Roth IRA. That way the funds can compound for the future and be withdrawn tax free, as long as you meet the withdrawal guidelines.

“I have high-income clients who open traditional IRAs and make non-deductible contributions on an automatic monthly basis to the maximum allowable amount ($5,500, or $6,500 for those age 50-plus). At the end of each quarter, we submit a full conversion request so that the entire IRA balance gets converted to their Roth account. By converting on a quarterly basis, there is not a lot of time for taxable gains to accrue in the traditional IRA. So the tax implication of the conversion is minimal for the client. And, they’re saving additional retirement dollars to compound and withdraw tax-free later on,” says Alyssa Marks, lead advisor, CMFS Group, Inc., Morton, Ill.

5. Retire in the right state.
Florida, Tennessee, South Dakota, Wyoming, Texas, Nevada and Washington: These states boast “no state income taxes.” Be aware that New Hampshire and Tennessee do tax dividends and interest. Fortunately for retirees, most states don’t tax Social Security. Before packing up and moving, evaluate all of the taxes in your proposed new home state.

6. Self-employed? Take advantage of available retirement savings vehicles.
Even if it’s just a side job, self-employment income allows you to contribute to a solo 401(k) and a Simplified Employee Pension (SEP) plan. You can contribute up to 25% of your net self-employment income, up to $53,000 (the 2016 limit; in 2017, it’s $54,000) with a SEP. If you’re under age 50, you can invest up to $18,000 (2016) in a Solo 401(k) in the role of employee. There’s also an opportunity to contribute more to the solo 401(k) in the role of the employer.

7. Don’t overlook the health savings account.
With healthcare costs growing and the proliferation of high deductible health plans, the health savings account (HSA) is a golden retirement planning opportunity. This tool can not only be used to pay for health care expenses, but also to squirrel away additional funds for retirement. The individual or employer contributes up to $6,750 for a family or $3,350 for an individual. The contributions are 100% tax deductible, and funds unused for medical expenses may continue to be invested and grow over time. Those over age 55 can sock away an additional $1,000 per year.

“Health savings accounts are the only savings vehicle that is tax deductible on the way in and potentially tax-free on the withdrawal if used for qualified medical expenses. These accounts should absolutely be funded to the maximum since participants are almost certain to have some out-of-pocket medical expenses currently or in the future,” says Robert M. Troyano, CPA, CFP®, founder and managing partner at RMT Wealth Management in Saddle Brook, N.J.

What’s more, “once you reach age 65, any assets inside the HSA account may potentially be used for anything, not just healthcare-related expenses,” says Mark Hebner, founder and president of Index Fund Advisors, Inc., in Irvine, Calif., and author of “Index Funds: The 12-Step Recovery Program for Active Investors.”

8. Benefit from getting older.
If you’re over age 50, the tax system is your friend. Retirement plan contribution limits are raised, giving the older investor a chance to accelerate their retirement savings. You’re allowed to increase contributions to both traditional and Roth IRAs by $1,000 for a total 2016 amount of $6,500.

How to Pay Less The Taxes on Retirement Assets

Retirement planning can be tough. It is hard enough to save for a comfortable retirement during your working years. Once you actually retire, managing your withdrawals and your spending can be complicated. One important and complex area in both instances is managing the process in the most tax-efficient manner.

If you have portions of your nest egg in various types of accounts ranging from tax-deferred to tax-free (a Roth) or to taxable it can be a challenge to decide which accounts to tap and in what order.

Required minimum distributions (RMDs) also come into play after age 70½. Here are some tips for those saving for retirement, for retirees and for financial advisors advising them. (For related reading, see: Should Retirees Reinvest Their Dividends?)

Fatten Up Your 401(k)
Contributing to a traditional 401(k) account is a great way to reduce your current tax liability while saving for retirement. Beyond that your investments grow tax-deferred until you withdraw them down the road.

For most workers, contributing as much as possible to a 401(k) plan or a similar defined contribution plan like a 403(b) is a great way to save for retirement. The maximum salary deferral for 2016 is $18,000 with an additional catch-up for those age 50 or over of $6,000, bringing the total maximum to $24,000. Add any company matching or profit-sharing contributions in and this is a significant tax-deferred retirement savings vehicle and a great way to accumulate wealth for retirement.

The flip side is that with a traditional 401(k) account, taxes, at your highest marginal rate, will be due when you withdraw the money. With a few exceptions, a penalty in addition to the tax will be due if you take a withdrawal prior to age 59½. The assumption behind the 401(k) and similar plans is that you will be in a lower tax bracket in retirement, though as people live longer and the tax laws change we are finding this is not always the case. This should be a planning consideration for many investors. (For more, see: Are 401(k) Withdrawals Considered Income?)

Use IRAs
Money invested in an individual retirement account (IRA) grows tax-deferred until withdrawn. Contributions to a traditional IRA may be made on a pre-tax basis for some, but if you are covered by a retirement plan at work, the income limitations are pretty low.

The real use for an IRA for many is the ability to roll over a 401(k) plan from an employer when they leave a job. Considering that many of us will work at several employers over the course of our careers, an IRA can be a great place to consolidate retirement accounts and manage them on a tax-deferred basis until retirement.

Considerations With a Roth IRA
A Roth account, whether an IRA or within a 401(k), can help retirement savers diversify their tax situation when it comes time to withdraw money in retirement. Contributions to a Roth while working will be made with after-tax dollars so there are no current tax savings. However, Roth accounts grow tax-free and if managed correctly, all withdrawals are made tax-free.

This can have a number of advantages. Besides the obvious benefit of being able to withdraw your money tax-free after age 59½ and assuming that you’ve had a Roth for at least five years, Roth IRAs are not subject to RMDs – required minimum distributions, that have to begin when you reach 70½. That’s a big tax savings for retirees who do not need the income and who want to minimize their tax hit. (For more, see: Why Boomer Retirements Will Be Vastly Different Than What They Planned For.) For money in a Roth IRA, your heirs will need to take required distributions, but they will not incur a tax liability if all conditions have been met.

It is generally a good idea to roll a Roth 401(k) account into a Roth IRA rather than leaving it with your former employer in order to avoid the need to take required distributions at age 70½ if that is a consideration for you.

Those in or nearing retirement might consider converting some or all of their traditional IRA dollars to a Roth in order to reduce the impact of RMDs when they reach 70½ if they don’t need the money. Retirees younger than that should look at their income each year and in conjunction with their financial advisor, decide if they have room in their current tax bracket to take some additional income from the conversion for that year. For more, see Why Age 70 Is Pivotal for Retirement Planning.

Open an HSA Account
If you have one available to you while you are working, think about opening an HSA account if you have a high-deductible health insurance plan. In 2016, individuals can contribute up to $3,350 per year; families can contribute $6,750. If you’re over age 50 you can put in an additional $1,000.

The funds in an HSA can grow tax free. The real opportunity here for retirement savers is for those who can afford to pay out-of-pocket medical expenses from other sources while they are working and let the amounts in the HSA accumulate until retirement to cover medical costs that Fidelity now projects at $245,000 for a retiree couple where both spouses are age 65. Withdrawals to cover qualified medical expenses are tax-free.

Choose the Specific Share Method for Cost Basis
For investments held in taxable accounts, it is important to choose the specific share identification method of determining your cost basis when you have purchased multiple lots of a holding. This will allow you to maximize strategies such as tax-loss harvesting and to best match capital gains and losses. Tax-efficiency in your taxable holdings can help ensure that more is left for your retirement.

Financial advisors can help clients to determine cost basis and advise them on this method of doing so.

Manage Capital Gains
In years when your taxable investments are throwing off large distributions – to the extent that a portion of them are capital gains – you might utilize tax-loss harvesting to offset the impact of some of these gains.

As always, executing this strategy should only be done if it fits with your overall investment strategy and not simply as a tax-saving measure. That said, tax management can be a solid tactic in helping the taxable portion of your retirement savings portfolio grow.

Information About 3 Big Keys to Advisor Profitability

Many financial advisors are seeing their profit margins steadily shrink in the wake of increased pricing competition from robo-advisors and rising compliance costs that have been exacerbated by the new fiduciary rule that was handed down by the Department of Labor earlier this year. This margin squeeze is being felt at all levels of the industry, from solo practitioners to pension and mutual fund managers, and all indications point to this trend continuing for the foreseeable future.

Here are three critical factors that can help advisors to maintain their profits and grow their businesses.

Consumer Demand
Today’s financial consumers are demanding cutting-edge technology that allows them to access their money and monitor their portfolios at any time from their computers, smartphones and tablets. Advisors today need to maintain a strong digital presence in order to stay ahead of the competition; they also need to employ social media to their advantage. Online endorsements on sites such as LinkedIn may carry more weight today than other forms of prospecting, and advisors who are able to earn these client recommendations can keep themselves in the driver’s seat in their efforts to generate new business.

Clients who are provided with the products and services that really matter to them will be less likely to complain about fees or poor investment performance, but advisors need to be ready to justify the fees that they charge to their clients irrelevant of investment performance. Attracting millennial clients may be especially difficult, as this generation grew up during the subprime mortgage meltdown and the Great Recession. Many of them are skeptical of financial planners and expect total transparency from them before they will invest. Advisors can combat this tendency with a combination of the latest digital tools and human empathy and reasoning.

Compliance Costs
The Department of Labor’s new fiduciary standard has had an enormous impact on the retirement planning industry, and many financial advisors are being forced to restructure their business model and pony up additional money to ensure that they remain compliant. But advisors can also use this change as an opportunity to land new clients that may leave advisors who previously only met the suitability standard for their transactions. Many firms can stay ahead by recreating themselves to embrace the fiduciary standard and provide clients with top-notch services and transparency. Firms that fail to do this may find themselves falling behind in the race for new clients. (For related reading, see: How Human Advisors Can Compete With Robo-Advisors.)

Competition
The advent of robo-advisors is one of the biggest developments in the financial industry in recent years. These automated platforms can provide basic investment management to consumers at a fraction of the cost of most human advisors. But they have some limitations, and many advisors are choosing to employ these programs in their practices in order to more effectively scale their businesses and devote more time to dealing with the human element of their business. They’re also using them to perform more specialized transactions, such as working with stock options or buy-sell agreements. Many advisors are also adding additional services such as a free financial plan for their clients in order to add value and justify their fees.