Financial Planning Archives

How the Rules of Homeownership Have Changed

Written on May 10, 2019.

Are you thinking about downsizing in retirement? Maybe you plan to make your vacation home your primary residence once there’s no office to commute to everyday. Or, maybe you’re considering buying a property to rent out to generate income in retirement. Either way, if you’re thinking about buying a house you should probably take some time to learn how it will impact your tax situation. It may have been a while since you bought a home, and the rules of homeownership have changed in the past few years thanks to tax reform.

If you itemize your taxes, then you have the opportunity to deduct your mortgage interest. This is a way to help make homeownership more affordable. Around 21% of taxpayers claim this deduction, saving them an average of $1,950 in 2016. But the following year, tax reform almost doubled the standard deduction to $12,000 for single filers and $24,000 for married couples filing jointly, thus reducing the number of people who chose to itemize. If you used to itemize but now take the standard deduction, keep in mind that you can no longer deduct your mortgage interest on your current home, or any new home you might buy.

As an experienced home owner, you likely know that property taxes are a cost to consider and plan for. Tax reform capped the state and local tax deduction at $10,000. This now means you can deduct up to $10,000 in total, not per property. Therefore, this could make owning multiple homes more costly, especially in states and cities with high taxes. Also, you can no longer deduct mortgage interest on second homes bought after the new law took effect, which is one thing to consider if you are thinking about buying a second home.

You may not be able to deduct all of your mortgage because the mortgage interest deduction is now capped at $750,000 instead of $1 million for new mortgages. Home equity loans are also no longer deductible, so be sure to review and plan carefully before committing to such an illiquid asset.

These homeownership rule changes could also impact your ability to sell your home, especially if it is worth over $750,000 or comes with high property taxes. This could ultimately change your decision to downsize in retirement, invest in a rental property, or buy a vacation home.

Buying a second home and moving in retirement are big decisions. If you need help navigating the new tax code when deciding how second homeownership will affect your overall retirement plan, contact the professionals at Peak Financial Freedom Group. We can help you create a comprehensive retirement plan that helps to minimize your tax burden, so click here to schedule your no cost, no obligation financial review.

Exploring Alternative Investments

Written on April 19, 2019.

We’re living – and retiring – in unique times, and some retirement strategies reflect this. Many of those nearing retirement are on their own, as companies typically don’t fund pensions now. As Americans live longer, nest eggs need to stretch further. In a time of low interest rates, some high net worth individuals are exploring alternative investments to help grow their wealth.

Alternative investments are geared towards high net worth individuals with investment experience because of their high minimum investment requirements. Examples of alternative investments include private equity, hedge funds, managed future, real estate, commodities and derivatives contracts. Compared to mainstream investments like stocks and bonds, alternative investments have low liquidity, and may be more difficult to value. The risk and return vary widely among different types of alternative investments.

Because interest rates are at a historical low, some are looking to alternative investments to grow wealth more aggressively. Real estate tends to be a popular alternative investment because of the option for renting out the property while waiting for its value to appreciate. Some look to gold in times of crisis because it can be an effective inflation hedge. One option is to hold gold bars, coins, and jewelry, and another Is to invest in gold exchange-traded funds or gold futures and options. Private equity seeks long-term appreciation from the growth of private companies, as opposed to public markets.

An alternative investment could bring balance to your retirement portfolio by helping you diversify and hedge against downside. Potentially higher income levels could make alternative investments a good strategy for high net worth individuals who have less to worry about during periods of market volatility. After all, you don’t want to let market volatility ruin your retirement. However, alternative investments also tend to be more complicated and less transparent, requiring a certain amount of investment know-how to make the best use of them.

For high net worth individuals, alternative investments could help to grow wealth. In a time when pensions are not the norm, and interest rates are low, it may be time to consider alternative investments. If you’re looking to diversity your retirement portfolio, contact the professionals at Peak Financial Freedom Group. Click here to schedule your no cost, no obligation financial review today to take the first step towards a comprehensive retirement plan.

Spring Cleaning Your Retirement Accounts

Written on April 16, 2019.

By the time you’re ready to retire, you’ve probably had a number of jobs over the course of your working life. In fact, according to the Bureau of Labor Statistics, Americans hold an average of 12 different jobs by age 50. This means that it’s likely you also have more than one 401(k) account, leaving you with a few options for spring cleaning your retirement accounts; rolling over your old 401(k)s into your IRA or 401(k) at your current job, leaving it where it is, or cashing out. If you’re looking to spring clean your finances, you might want to address your old 401(k)s.

If you left a job and had less than $5,000 in your 401(k) account, you may not have been allowed to keep it in that account. But, if you weren’t prompted to move it, you may have forgotten about relatively small sums to money in different accounts. This can become an issue when people don’t know how much they’re paying in fees in their 401(k) account. Even a small difference in fees can add up over time to significant amounts of money. You can compare the fees between multiple accounts to determine whether or not to consolidate funds.

You may want to rollover funds from old 401(k)s to make it easier to manage your money. For example, if your contracts at your old company are no longer current, or your investment portal changes, it can mean more paperwork to keep track of. You’ll need to assign beneficiaries to all your retirement accounts, and remember to update all of them in the event of divorce, death, or another life-changing event. If you are no longer able to directly handle your financial affairs as you get older, reducing financial clutter can make it easier if you’re thinking about how to pass on a retirement account.

You can roll over your old 401(k) into a traditional or Roth IRA. The transfer to a traditional IRA is simple, as both contributions were made pre-tax. But, if you roll it over into a Roth IRA you must pay tax on the funds and may have to increase withholding or pay estimated taxes to account for the liability. If your 401(k) was a Roth account, you will not pay tax on the funds you rolled over into a Roth IRA.

If your finances need some spring cleaning and you’re unsure of which option for your old 401(k) is best, contact the professionals at Peak Financial Freedom Group. We can help you create a retirement plan that help you make the most of what you’ve earned. Click here to schedule your no cost, no obligation financial review today.

Caring for Aging Parents

Written on April 12, 2019.

Baby Boomers are sometimes referred to as the “Sandwich Generation,” because many spend time and money care for both their children and aging parents. In fact, according to the Pew Research Center, one in eight middle-aged Americans cares for at least one child and parent in their house. Aging parents who require expensive medical care and ongoing long-term care can become a financial burden, especially as Americans continue to live longer. There are ways to use these costs to lower your taxes and help fund long-term care expenses.

If you care for a parent and provide more than half of their support, you can no longer claim the $4,050 personal exemption for your parent. But, you can still claim them as a dependent if they do not file jointly with a spouse, you paid more than half of their support for the calendar year, they lived with you all year or are a qualified relative, and their gross income was less than $4,150.

You can also deduct what you paid for a loved one’s unreimbursed medical costs if it exceeds 7.5% of your adjusted gross income. The threshold used to be 10%, but for the 2018 tax year has been reduced to 7.5%. These costs can include dental treatments, health insurance premiums, transportation to medical appointments, and qualified long-term care services. Long-term care insurance is expensive, and there are long-term care myths, but most policies are tax-qualified so if you itemize consider deducting premiums. The amount you can deduct rises with age: Those 40 and under can deduct up to $420, and those 71 and over can deduct up to $5,200.

You can count long-term care services as medical expenses if they were required for a chronically ill person and prescribed by a licensed health-care practitioner. For example, if your loved one requires care because of a specific medical condition such as Alzheimer’s, these expenses can qualify. But, general household services cannot be deducted, even if they are performed by the same employee giving personal care services needed because of a chronic condition. If you hire an in-home caregiver and want this deduction, you should get a letter from your loved one’s doctor documenting that the care is necessary.

If you’re not sure if taking the standard deduction or itemizing and taking these deductions is better for you, consult the professionals at Peak Financial Freedom Group. Taxes can constitute your biggest expense in retirement, and we want to try and help you minimize them. Click here to visit us online and schedule you no cost, no obligation financial review today.

Lifelong Learners: Set Up a 529 Plan for Yourself

Written on March 29, 2019.

Whether you think of yourself as an old dog or spring chicken in retirement is up to you. Even if you don’t retire early, you still have many years ahead of you to enjoy your free time, or even discover a new interest. If you’d like to continue your education in retirement as part of pursing another career, or just to nurture an interest, you can fund it with a 529 plan.

If you’ve used a 529 plan to contribute to a child or grandchild’s education, you’ll be familiar with how the tax advantaged account works: Funds grow tax-free in the account, and can with be withdrawn tax free to pay for tuition, books, room and board, or other qualified education expenses. One former accountant took advantage of his 529 plan to study horticulture and conversation using the $5,000 he had saved. He retired at 62 and now runs a farm – talk about a career change!

Each state has its own plan, and it is worth comparing plans since some states offer different deductions, better investing options, and or lower fees. However, most states offer their residents a tax break for contributing to the state’s own plan. Even if you don’t allow much time for the funds to grow in the account, you can still take advantage of the rule that allows you to withdraw immediately and still qualify for a state tax deduction that same year. Michigan, Minnesota, and Montana, and Wisconsin have restrictions on this, however.

Keep in mind that you can’t benefit from both a 529 plan and the federal Lifetime Learning tax credit. The latter is worth 20% of the first $10,000 in tuition you pay per year. If you use the federal Lifetime Learning tax credit, you can pay additional expenses with a 529 account, but the withdrawals will not be tax free.

If you have leftover money in a 529 account originally intended for a child or grandchild, you can use it for your own education. Who said you can’t teach an old dog new tricks? Continuing your education is one way to use your free time in retirement, whether as part of pursuing another career, or just nurturing an interest you didn’t have time for while you were working. If you’re not ready to stop learning in retirement, consider using a 529 plan to finance your retirement goals.

If you have a unique set of retirement goals and aren’t sure how to go about creating a plan to achieve them, contact the professionals at Peak Financial Freedom Group. We can help you strategize so that you can finance the retirement you deserve. Click here to visit us online and schedule you no cost, no obligation financial review today.

If You Have an IRA Don’t Forget About This Important Deadline

Written on March 25, 2019.

Most people know that April 15^th is Tax Day, but they may not know that it is also the deadline to contribute to an IRA. Even if you file for a tax extension, you must send your IRA contribution by April 15^th. Contributing to an IRA is one good way to save for retirement, so make sure your contribution isn’t forgotten in the busy period leading up to Tax Day.

You can contribute up to $5,500 a year to your IRA for 2018 if you are under 50. If you are over 50, you can contribute an additional $1,000. You can no longer contribute to a traditional IRA after you turn 70 ½, but you can contribute to a Roth IRA for as long as you live. Due to a unique set of circumstances, you might be wondering if now is the time to convert to a Roth IRA.

If you make more than $199,000, you cannot contribute to a Roth IRA. You can contribute to a traditional IRA no matter how high your income is. However, there are limits as to what you can deduct from your taxes: If you have a retirement plan through your employer and your income is over $73,000 as a single person, or over $121,000 as a married person filing jointly, you cannot take a deduction if you contribute to a traditional IRA.

In general, you must earn income in order to contribute to an IRA, but you can contribute on behalf of a nonworking spouse. The working spouse can contribute the maximum amount to both his or her IRA and the nonworking spouse’s IRA. If you want to take advantage of this, you must do so before April 15^th.

Note that you still have to make an IRA contribution by April 15^th even if you file for a tax extension, unless you are contributing to a SEP-IRA in which case you must contribute by your tax filing due date. As with a tax return, you must mail the contribution by April 15^th and it’s immaterial as to when it arrives at your financial institution. Make sure to clearly indicate to which year your contribution applies, especially if you are sending your contribution between January 1^st and April 15^th.

At Peak Financial Freedom Group, we want to make saving for retirement as easy as possible. With so many nuances to the rules regarding retirement accounts, it helps to have a team of professionals at your side. Click here to schedule you no cost, no obligation financial review today.

How to Use Your HSA After You Turn 65

Written on March 22, 2019.

Do you have a Health Savings Account (HSA)? If so, you should note that the rules regarding HSAs change when you turn 65. It’s important to prepare for the rising cost of healthcare in retirement, and an HSA can be a good way to cover future medical expenses, both for you and your spouse. However, once you sign up for Medicare, you can no longer contribute to an HSA. So, here is how you can make the most of what you’ve saved in your account.

The benefits of an HSA are that contributions are not taxed, funds grow tax deferred, and can be withdrawn tax free for qualified medical expenses. You can also learn the benefits of pairing your IRA with a Health Savings Account. You can still contribute to your HSA for 2018 until April 15^th of this year if you have not signed up for Medicare yet. Before age 65, you can’t use funds from an HSA to pay for non-medical expenses without incurring a 20% penalty. But, when you turn 65, you only have to pay taxes on withdrawals for non-medical expenses, and do not have to pay taxes on withdrawals for qualifying medical expenses. Qualifying medical expenses include Medicare Part B and Medicare Advantage plans, prescription drugs, a portion of long-term care insurance premiums, dental and vision care.

Unlike a flexible spending account, the use-it-or-lose-it rule does not apply to HSAs. One strategy you can use is to avoid withdrawing from your HSA before you turn 65, by paying in cash for medical expenses. If you keep the receipts, you can withdraw from your HSA to reimburse yourself years later. This way, the funds have more time to grow tax free, and you can delay withdrawing until after you are 65 and the funds used for qualifying medical expenses are no longer subject to tax.

If you are still working past the age of 65 and delay signing up for Medicare, you can continue to contribute to an HSA. People who have an employer match may choose to do this. You must also delay Social Security benefits in order to delay Medicare and must work for an employer with more than 20 employees.

Make sure you know the rules regarding using an HSA after the age of 65 before you turn 65. If you’re like most Americans, you will start receiving Medicare benefits when you are 65, and will no longer be able to contribute to an HSA. However, this doesn’t mean that your HSA can’t be a useful tool in retirement if you know how to make the most of what you’ve saved in your account.

Knowing ahead of time how to use your HSA when you turn 65 can help you create a retirement plan that take rising healthcare costs into account. Here at Peak Financial Freedom Group, we can help you prepare for retirement by arming you with knowledge and a comprehensive plan based on your individual needs. Click here to schedule your no cost, no obligation review today.

Don’t Let Market Volatility Ruin Your Retirement

Written on March 19, 2019.

Now that you’re nearing retirement, the term “market volatility” might stir up different feelings than it 30 years ago. Older workers and retirees understand that they have less time to make up for losses in their investments and to ride out future market crashes than they did when they were younger. And with life expectancies increasing, leaving your financial wellbeing up to the whims of the market seems like less and less of a good idea. We know that there will always be crashes, even if no one knows exactly when they will come, so why not develop a plan ahead of time?

After a crash, people may be tempted to sell their stocks if they panic, or need immediate funds. But in doing so, they ensure that they won’t see the stock appreciate when the market recovers. In order to keep this panic at bay, you can think of creating your portfolio around the idea of retirement income.

Creating reliable retirement income can be a good retirement strategy for high-income earners. The first step would be to create guaranteed retirement income with “safe” investments. The value of bonds and savings account are not seriously affected by the ups and downs of the market, and reliable paychecks include Social Security, annuities, and bond ladders. Certain annuities will also protect against outliving your retirement savings.

After covering your basic needs with safe investments, you can look to grow the rest of your savings more aggressively. You can think of the funds generated as “retirement bonuses.” These “bonuses” can be used for non-necessities like travel, spending of grandchildren, and the activities you want to enjoy with your free time in retirement. You can develop a withdrawal plan based on market performance, meaning decreased withdrawal amounts when the market drops, and increased amounts when it experiences gains.

It’s also important to create an emergency fund for events like unexpected medical expenses and home and car repairs. This fund will be separate from your first two funds, so if there is an emergency you will not have to disrupt the overall structure of your retirement plan by dripping into them.

The term “market volatility” probably doesn’t create good feelings if you’re nearing retirement or already retired. Developing a plan for periods of market volatility before they happen can help you weather storms.

You don’t know when the next crash is, but you can plan for it. Click here to schedule your complimentary review today, and let the professionals at Peak Financial Freedom Group help you create reliable retirement income, sources of growth, and an emergency fund for a rainy day.

Did You Make a Qualified Charitable Distribution this Year?

Written on March 15, 2019.

Did you make an IRA charitable distribution this year? If so, you’ll want to report it on your tax return. Charitable contributions are a great way to reduce your taxable income and build your legacy. Do you have a retirement account? Be prepared for your RMDs! After you turn 70 ½, you must take required minimum distribution (RMDs) from your traditional IRA, and you can transfer up to $100,000 per year to charity tax free to count towards your RMD. This is called a qualified charitable distribution (QCD), and there are a few things to know about the process of reporting it during tax time.

You must make a QCD by December 31^st, which is also the deadline for RMDs, unless it is your first time taking one. The money must be transferred directly from an IRA to the charity, and the charity must cash the check before the end of year. This way, the contribution can be excluded from the adjusted gross income (AGI) whether you are itemizing or taking the standard deduction. Excluding the charitable contribution from your AGI allows more AGI-based tax benefits, resulting in lower taxes. Now that the standard deduction has increased to $24,000 for couples and $12,000 for individual filers, QCDs can especially help lower retirees’ tax burdens. The limit is $100,000 per person, so you and your spouse can each contribute that amount from both of your accounts.

Your IRA administrator doesn’t specify whether your contribution was a withdrawal or a tax-free transfer to a charity on your 1099-R. So, when you file your Form 1040, you report the total distribution amount, then the amount of that you kept, and then enter “QCD” to indicate the remainder, which is your charitable contribution. Also, keep a record from the charity documenting your contribution. Before contributing to a charity, make sure it is eligible to receive a QCD, meaning it is a 501(c)(3) charity and not a Donor Advised Fund or private foundation.

Qualified charitable distributions can be a good way to make the most of your RMDs. It’s important to follow proper procedures when making a QCD, and understand how it works to decrease your tax burden in retirement under the new tax code. Knowing about when to make a QCD and the process of reporting it is important for those 70 ½ and older who face taking required minimum distributions (RMDs).

If you want to make charitable giving a part of your retirement plan, contact the professionals at Peak Financial Freedom Group. We can help you throughout the whole process – from finding a qualified charity to specifying a QCD on your tax form. Click here to schedule your complimentary, no obligation review today.

The Rising Cost of Healthcare in Retirement

Written on March 11, 2019.

We know life is like a box of chocolates – but what about retirement? Do you really know what it holds, or how much it will cost? It’s easy to budget based on your current lifestyle, but what about anticipating major unexpected costs? The truth is that as you get older, it’s likely you’ll have to spend more on healthcare. But the truth is also that there are things you can do to plan ahead for this. We always hear that healthcare costs are rising and Americans are living longer, so why not take these facts into account when planning for retirement?

According to the Employee Benefit Research Institute, a couple retiring at 65 will need to pay around $399,000 for healthcare costs in retirement. That could be a significant chunk of your retirement savings, and you never know when you might need serious medical attention. 23% of families over 75 experience a $400 or greater medical expense once a year. This can pose a major problem, as Americans between 65 and 74 spend about 77% of their income on housing, healthcare, food, transportation, and clothing. This doesn’t leave much wiggle room for major healthcare expenses, and transitioning into retirement is no small task.

Working longer can be a solution, but you might want to enjoy the benefits of an early retirement. Saving more is also an option, and specially saving in a Health Savings Account (HSA) account can be a good strategy. If you have a high-deductible health insurance plan, defined as one with an out-of-pocket maximum of $6,750 and a minimum deductible of $1,350, you can contribute up to $7,000 a year to an HSA for your family. There are also benefits to pairing your IRA with a Health Savings Account.

If you’re exceptionally healthy, you might not be as worried about high healthcare costs, but you might need to worry about outliving your retirement savings. Deferred annuities, or “longevity annuities” pay out a defined amount at a specific date in the future. Deferred annuities cost less than immediate annuities, because the money has more time to grow before payouts start. A deferred annuity can pay you for the rest of your life, and then continue paying your spouse if you are to pass away before him or her. This can be a good strategy to protect both you and your spouse from outliving your retirement savings.

Although it’s difficult, thinking about unexpected costs during retirement now can help you avoid bigger problems in the future. It’s not enough to create a budget based on your current lifestyle: As healthcare costs rise and Americans are blessed with longer lives, retirement planning becomes more complicated.

If you want help creating a comprehensive retirement plan, contact the professionals at Peak Financial Freedom Group. Click here to schedule your no cost, no obligation financial review so we can start helping you plan for the unexpected.