Investment Trends, Tips and Taxation Archives

Women and Investing: Life Lessons to Learn

Angela Hall on September 1, 2020

There are many statistics about the gender pay gap worldwide. For example, in the United States, women still only earn 82 cents to a man’s dollar. It is also well acknowledged that women, on average, outlive men. So, the importance of women saving and investing to help make up for this deficit is obvious.

The thing is, according to a study conducted in the late 90s by Brad M. Barber and Terrance Odean, while women have many traits that would make them good investors, they are far less confident than men in their investing ability. In fact, data from several studies over the years show that even when women have investment accounts, they hold the majority of their money in more conservative holdings like bonds and cash.

The question becomes, how to get women not only to invest, but to invest more aggressively when appropriate. The following five tips can help.

1. Begin With an Emergency Fund

The first step to financial security is having enough cash in a savings account to cover at least three-to-six months’ worth of unexpected expenses. This fund will not only help you in case of an emergency, but can also give you the confidence to start investing and help weather a market downturn.

2. Look to retirement

Whether you’re in your 20s or your 40s, you can’t afford to wait to start saving for retirement. And even though women are known to put others’ needs first, when it comes to retirement, you have to think of yourself. Take full advantage of a company retirement plan like a 401(k). In fact, this is a great way to begin investing. Contribute at least up to the company match, more if possible. Don’t have a company plan? Consider an IRA. The point is to save as much as you can as soon as you can. Living to 90-plus is becoming more common. You need to be prepared.

3. Invest in stocks

Your first thought may be that you don’t want to take the risk. Market downturns definitely happen as we’ve recently seen, but being too cautious can also put you at a disadvantage. Stocks are an important part of any portfolio because of their long term potential for growth and higher potential returns versus other investments like cash or bonds.

As evidence, consider this statistic: a dollar kept in cash investments from from 1926 to 2019, would only be worth $22 today. That same dollar invested in small-cap stocks over those 93 year would be worth $25,688 today.1

So where to begin? Many broad-based mutual funds and exchange-traded funds make it easy to invest in a cross-section of stocks. An index fund or target-date fund can make it even easier. Using a robo advisor can also be a good way to begin. You don’t have to know a lot to start; you just need to know where to start.

4. Plan for Other Financial Goals

What are your other goals—a down payment on a home, a child’s education or a vacation? Investing a portion of your savings in stocks may help you reach those goals faster, with the caveat that money you think you’ll need in three to five years should be in less risky investments. Stock investing should ideally be long-term, understanding how much risk you can stomach, and how much risk you can afford to take.

5. Ask for Help and Advice

When you have questions, ask your benefits administrator, your broker, even a knowledgeable friend or family member—but ask. There are also lots of online investing resources to explore. Need more? Consider working with a financial advisor.

A financial advisor is sort of like a personal trainer, someone to guide you and keep you going when you might otherwise be tempted to call it quits. He or she should understand your feelings, situation, and goals. Never hesitate to ask questions, including how your advisor is paid.

No time like the present

Time is a crucial factor in investing. If you have many years ahead of you to invest—and you commit to keeping your money invested—time will likely help you weather the inevitable market ups and downs. That’s not to say you can’t start investing later in life, but keep in mind that money you’ll need in the short-term should not be in the stock market.

That said, women need to develop the knowledge base and confidence to make the most of their hard-earned savings and build financial independence through investing. It doesn’t take a lot of money; it just takes getting started. Contact Angela Hall, CFP, if you’re ready!

[1] Source: Schwab Center for Financial Research. The data points above illustrate the growth in value of $1.00 invested in various financial instruments on 12/31/1925 through 12/31/2019. Results assume reinvestment of dividends and capital gains; and no taxes or transaction costs. Source for return information: Morningstar, Inc. Based on the copyrighted works of Ibbotson and Sinquefield. All rights reserved. Used with permission. The indices representing each asset class are CRSP 6-8 Index (small-cap stocks) through 1978, Russell 2000 thereafter; and Ibbotson U.S. 30-day Treasury bills (cash investments). Past performance is no guarantee of future results.

Parts of this blog were excerpted from an online article by Carrie Schwab-Pomerantz,CFP®, Board Chair and President, Charles Schwab Foundation; Senior Vice President, Schwab Community Services, Charles Schwab & Co., Inc.; Board Chair, Schwab Charitable

Mid-Year Tax Reviews Can Save You $$$

Shawn Glogowski on August 31, 2020

Every tax season, U.S. businesses owners and individual taxpayers undergo an amazing ritual. At the beginning of the year, we start collecting forms from various entities: banks, creditors, investment companies, our employers, etc.

After we have gotten all of our paperwork, we then figure out whether we’re going to waste a weekend slogging through all this paperwork, or if we’re going to outsource it to someone like a strip mall tax preparer or a CPA. Whatever we decide, our singular focus is to figure out one thing: “How big is my refund going to be?”

If the answer is negative, meaning we owe the IRS money, that ruins the whole weekend. Whatever the result, all we know is that once we have finished—which is usually around March 15th for businesses and April 14 for most individuals— we don’t think about taxes for another year.

Is that the right approach? Perhaps not.Here are 5 reasons why you might want to review your tax situation mid-year.

Tax Review Reason #1: Adjusting employer withholdings.

In early 2018, the IRS prescribed new withholdingtables for employers, based upon the changes in the Tax Cuts and Jobs Act of 2017. While most people will pay a lower tax bill, there are those who might pay more. However, the withholding tables are largely adjusted to withhold less in taxes which can result in a nasty double whammy for some taxpayers of paying more in taxes, but having less withholdings in their paycheck.

You can avoid this situation by simply taking 10 minutes to check for yourself on the IRS’ withholding website. Here, you can walk through some pretty simple questions about your personal situation, income, and possible deductions. After answering these questions, the IRS will give you some suggestions on whether you need to adjust your employer withholdings.

Tax Review Reason #2: Seeing the tax impact of specific life events.

Sometimes, it seems that our taxes just stay the same, regardless of what we do. That is not necessarily true. Here are a few examples of specific life events that should encourage you to do a mid-year tax review.

If you have a child going to college, you may qualify you for a tax credit and deductions for tuition expenses. Check out the IRS Website for details.
If you have purchased a home for the first time and are starting to itemize deductions because of the mortgage interest and real estate taxes you are now paying.
If you have installed energy-efficient appliances that provide you eligibility for tax credits. Click here for more information.
If you are recently retired and need to figure out how your withholdings work now that your employer is no longer taking that money out of your paycheck.

Tax Review Reason #3: Sound tax advice.

If you ask a tax professional questions about your financial situation at this time of year, you are consulting them when they are not singularly focused and stressed over getting through tax season.

You can have an enlightened conversation about this year’s tax return with the knowledge base of last year’s returns and the calm of an off-season consultation.

Tax Review Reason #4: Learn more about your options and properly plan.

Planning to sell some stock? Depending on your situation, there’s probably more than one right way to do this. There are also there are many tax-inefficient ways. Talking with a financial professional before you make these decisions might help you save money on taxes.
Looking to increase your charitable contributions this year? Perhaps you can get more bang for your buck if you bunch itemized deductions every other year.
Just retired, but not ready to take money out of your IRA? Perhaps it is worth doing Roth conversions while you’re in a low tax bracket, so you won’t get a nasty surprise when you have to start taking required minimum distributions and find out you’re in a much higher tax bracket. Proper tax planning might help you figure out the best decisions for your situation.

There are so many different aspects of your life with some sort of tax impact. And it’s important to make sure you’re doing this while you still have time to make changes. For example:

If you need to adjust your withholdings, it’s best to do it mid-year, so you have more paychecks for those changes to take effect. **
If you’re looking to contribute to an IRA**, it’s probably best to spread out those contributions over the course of the year. When you do tax planning mid-year, you can always come back at year-end to see what else needs to be done, but the reverse isn’t necessarily true.

The point should be to enjoy your BEST life while remaining as tax efficient as possible. And that’s best done with proper tax planning.

What’s next? Talk to your financial advisor. That’s us!! Note Advisors is a one-stop-shop for all of your tax review and planning needs.

In fact, GCW Principal, Shawn Glogowski, is an Enrolled IRS Agent, which means he is licensed to practice before the IRS and, if needed, can legally advocate with them on your behalf.

Why not get your mid-year tax review going now, before it’s too late.

SCHEDULE YOUR APPOINTMENT NOW

Parts of this blog were excerpted from an online article by WestChase Financial Planning.

Retirement: To Do It or Not? And When?

Shawn Glogowski on August 26, 2020

Retirement. A time in life to which we all look forward. However, According to the Bureau of Labor Statistics, in 2016, 26.8% of those between the ages of 65-75 continued to work—a number that is expected to rise to 30.6% by 2026.

There are varying reasons Americans are postponing retirement, from economic stability to personal fulfillment. Whatever the reason, and however long you might plan to remain working, there are retirement-related financial concerns that should be addressed in your sixties to ease your eventual retirement transition and avoid potential snags down the road.

Wait to File for Social Security

Just because you reach “full retirement age”(FRA)doesn’t mean you have to collect Social Security benefits, especially if you’re still working. The longer you wait, the more your benefits will increase—up to age 70.

Monthly benefits increase between six and seven percent for every year you delay from age 62 to your FRA, and then grow eight percent a year between your FRA and age 70. If you are healthy and longevity runs in your family, you stand a good chance of increasing your lifetime benefit by postponing your start date.

Enroll in Medicare Part A

If you’ve already filed for Social Security, you’ll be automatically enrolled in Medicare Part A and Part B at age 65. But if you haven’t, you have a choice to make.

Most people will benefit by enrolling in Medicare Part A at age 65 whether or not they continue to work. There are no premiums, and enrolling now will help you avoid potential penalties or delays down the road.

If you’re covered by your employer’s plan and your company has 20 or more employees, that plan will remain your primary coverage. If you work for a company with fewer than 20 employees, Medicare will be your primary insurer.

*Another caveat: Once you enroll in any portion of Medicare, you can no longer c*ontribute to a Health Savings Account. So if you’re relying on your HSA to boost your savings, you’ll need to postpone Medicare.

Consider Postponing Medicare Parts B and D

If you work for a company with fewer than 20 employees, you’re probably best off enrolling in Medicare Part B and Part D when you turn 65. But if you work for a larger company, you may well be better off sticking with your employer plan and enrolling in Medicare once you retire. This link to a Medicare.gov website provides information on costs and coverage that may help you make a decision.

Once you leave your job, you will generally have eight months to enroll in Part B or face a penalty. Part D also has a late enrollment penalty if you go more than 63 days without “creditable” prescription drug coverage. Creditable means that your existing insurance is expected to pay as much as the standard Medicare prescription drug coverage.

Continue to Save for Retirement

No one should ever walk away from an employer’s 401(k) match, but it makes sense to try and save more. The good news is that as long as you are working, you can continue to contribute the legal maximum ($26,000 in 2020) to your 401(k) regardless of age. If you anticipate being in a high tax bracket come retirement, you might want to consider a Roth 401(k), if available.

You can also contribute up to $7,000 to either a traditional or Roth IRA as long as you have earned income, although in 2020 Roth IRAs are restricted to those who earn less than $206,000 (combined income for a married couple filing a joint return) or $139,000 (single).

Note that the 2019 SECURE Act extended the age limit for contributing to a traditional IRA from age 70½ to 72.

Don’t Forget About Required Minimum Distributions

The CARES Act passed in March of 2020 has temporarily suspended all required minimum distributions (RMDs) for 2020, regardless of age. This includes 401(k)s and traditional IRAs.

Starting in 2021 when the CARES Act expires, we will revert back to the RMD rules established by the 2019 SECURE Act. If you did not turn 70 ½ by 2020, you can wait until the year in which you turn 72 to start taking your required distributions.

Also note that earning a paycheck means you can delay taking a required minimum distribution (RMD) from your 401(k). As long as you are working (and you don’t own more than 5% of the company), that requirement is waived until April 1 of the year you retire. There are also no RMDs for Roth IRAs at any age.

Think About Your Mortgage

Conventional wisdom says we should pay off our mortgages before we retire, but it’s important to look at your mortgage in the context of your complete financial profile. Before you rush to pay off your mortgage, especially if that involves selling securities or will reduce your liquidity, you should consult with your financial advisor.

Plan How to Turn Your Portfolio into Your Paycheck

Switching from saving to spending and depleting what you’ve worked so hard to build can be a difficult transition. Before you stop working:

Review your net worth statement to understand exactly where your stand.
Make a retirement budget and stash away a minimum of a year’s worth of cash.
Review your portfolio to make sure you have the appropriate balance of risk and safety.
Consult with your financial advisor to create a tax-efficient drawdown strategy.

It’s great to choose to work for as long as it’s financially and personally rewarding, but planning carefully for the eventual transition to retirement can make the next phase of life even more fulfilling.

This blog was excerpted from an online article by Carrie Schwab-Pomerantz, CFP®, Board Chair and President, Charles Schwab Foundation; Senior Vice President, Schwab Community Services, Charles Schwab & Co., Inc.; Board Chair, Schwab Charitable

401(k)? IRA? Both?

Shawn Glogowski on August 17, 2020

If you are fortunate enough to have a 401(k) or other employer-sponsored retirement plan, it can be the backbone of your retirement savings. Yet there is a good case for adding an IRA to your retirement funds as it not only provides the chance to save more, it can also offer more investment choices than in an employer-sponsored plan.

The question is, which IRA is right for you?

There are two types of IRAs: a traditional tax-deductible IRA and a Roth IRA. For 2020, the annual contribution limit for both is $6,000 with a $1,000 catch-up if you’re age 50-plus. However each IRA does have an income ceiling that will determine whether one or the other is right for you.

Traditional tax-deductible IRA—–This is a good option for someone who does not have a 401(k) or similar plan, a traditional IRA is fully tax-deductible. Upfront tax deductibility plus tax-deferred growth of earnings are two of the pluses of this type of IRA. However, if you participate in an employer sponsored retirement plan such as a 401(k), tax deductibility is phased out at certain income levels based on your Modified Adjusted Gross Income (MAGI). For tax-year 2020, the levels are $65,000-$75,000 for single filers, $104,000-$124,000 for married filing jointly.
Roth IRA—With a Roth IRA, you don’t get any upfront tax deduction, but you do get tax-free growth plus tax-free withdrawals at age 59½ as long as you’ve held the account for five years. And there’s no restriction if you participate in an employer plan. However, there are income phase-out limits based on your MAGI that determine whether you’re eligible to open and how much you can contribute to a Roth. In 2020, the limits are $124,000-$139,000 for single filers, $196,000-$206,000 for married filing jointly.

There are a couple of other things to considerwhen choosing between IRAs, the main one being whether you believe you will be in a higher or lower tax bracket when you retire.

That’s because withdrawals from a traditional IRA are taxed at ordinary income tax rates at the time of withdrawal; qualified Roth withdrawals are tax-free. Also there’s no required minimum distribution (RMD) for a Roth, but with a traditional IRA, you’ll have to begin taking an RMD at age 70½, or 72 if you were born on or after July 1, 1949.

Whether or not you choose to open an IRA, if your employer offers a Roth 401(k), you might also consider adding this to your retirement savings strategy. There are no income limits to participate in a Roth 401(k), and you can have both types of 401(k) at the same time.

Having both doesn’t mean you can contributemore than the total annual 401(k) contribution limit, but you can split your contributions between the two, giving you a combination of both taxable and tax-free withdrawals come retirement time. Making your 401(k) and IRA work together.

The goal of all this is to give you the greatest opportunity to save, with the greatest flexibility. Contribute enough to your 401(k) to capture the maximum company match, then, if you’re eligible contribute to a tax-advantaged Health Savings Account (HSA). If your 401(k) has limited investment options consider opening either a traditional or a Roth IRA and contribute the annual maximum.

Next, if you can, put more money in your company plan until you max it out. And if you get to the point where you can save even more (kudos!), put that money in a taxable brokerage account. The bottom line is you can’t really save too much, only too little.

Use all the savings and investing vehicles available to you, including both an IRA and your 401(k), to save as much as you can, as early as you can—and, at the same time, get the maximum tax break. You won’t regret it.

This blog was excerpted from an online article written by Carrie Schwab-Pomerantz, CFP®, Board Chair and President, Charles Schwab Foundation; Senior Vice President, Schwab Community Services, Charles Schwab & Co., Inc.; Board Chair, Schwab Charitable.

Making the Most of Your Charitable Donations

Shawn Glogowski on August 12, 2020

As we make our way through the pandemic, not for profits and community organizations are facing increasing challenges not only in serving those in need, but in keeping their doors open. These circumstances have led to a significant increase in the number of groups asking for donations.

How do you decide which causes to support? Additionally, if you’re concerned about getting a tax deduction for your contribution, the higher standard deduction, established by the Tax Cuts and Jobs Act of 2017, can make it a little more difficult.

These days you have to be strategic about those to whom you donate and the amount you give. Whether your donations are large or small, here are some ways to give meaningfully, stay true to your budget and to yourself—and possibly get a tax break as well

Personal strategies for giving

Just because you cannot give to every worthy cause, there’s no reason you have to feel ungenerous. With a little strategic planning, you can choose both the best place and the best way to share your good fortune.

Start with what’s important to you—Do you have a particular passion such as the arts, the environment, education, or fighting poverty? Is there an organization that has made a difference in your life? Giving to a cause that has a personal meaning can be both effective and rewarding.
Look to your own community—Making a financial contribution that will not only benefit a cause you believe in but also have a local impact can give your donation extra meaning. Consider a local food bank, a scholarship fund for a neighborhood school or a struggling homeless shelter in your city.
Narrow down your list—Chances are you can’t give to every charity on your list, so next think about where your donations will make the most difference and choose the top three. Consider doing a little extra research by comparing charities at an independent online rating service such as charitynavigator.org or charitywatch.org before you make your final choices.
Apportion your money accordingly—Decide on an overall dollar amount you can afford, and then decide how to distribute it. You don’t have to give the same amount to each charity nor do you have to give all the money at once. Many organizations welcome small regular contributions over time.

Getting a tax benefit for your contributions

Charitable contributions are still tax-deductible; howe ver, you have to itemize to get the benefit. With the higher standard deduction ($12,400 for a single filer, $24,800 for married filing jointly for 2020)—plus the reduction or elimination of many other itemized deductions—it can be a bit more of a challenge to get total deductions above that limit. Consequently, a lot of people will choose the standard deduction rather than claim the charitable deduction.

One possible solution is to give a larger amount every two or three years to help push you over the standard deduction rather than a smaller amount every year. This potentially would increase your deductions in the year you make your charitable contributions.

Also, to encourage giving and make it easier during the pandemic, the CARES Act provides a new “above the line” charitable contribution deduction of up to $300 if you claim the standard deduction in 2020.

For people who itemize deductions, it expands the limits on cash charitable contributions from 60 percent up to 100 percent of 2020 adjusted gross income.

Tax-smart ways to give

If tax advantages are an important part of your charitable-giving strategy, here are a couple of other ways to go about it.

A donor-advised fund (DAF) is one of the easiest, tax-advantaged means of giving to charity. It’s potentially more of an initial financial commitment but the ongoing benefits to you and the charities of your choice make it worth considering. It generally takes a minimum of $5,000 to open a donor-advised fund account; however, you may qualify to get an immediate tax deduction for the entire amount, if you itemize.
If you donate appreciated assets, you could not only get a tax deduction, but also potentially avoid having to pay capital gains taxes. You then use the funds to make grants to any public charity and any money not immediately distributed can be invested, potentially increasing the amount available to give. To me, if you have the means, it’s a great way to make an upfront contribution that you can then strategically manage over time. Plus, you can do most of it online—and have easy access to your giving history.
A qualified charitable distribution (QCD) from an IRA is another option for retirees who are over the age of 70.5 to give up to $100,000 a year to certain qualified charities. With a QCD, the donation is made directly from an IRA to the charitable organization, which means you don’t have to include that distribution in your taxable income.

Even though you don’t get a tax deduction from a QCD, it can be a tax efficient way to give—since the alternative of taking that distribution in to your income first and then making a donation could result in a higher tax on your Social Security benefits and Medicare premiums. In addition, a QCD can be used towards your required minimum distribution.

Whether you give a lot or a little, contribute money or time, by sharing what you have today you’re making a difference and investing in a better tomorrow for everyone.

This blog post was excerpted from an online article by Carrie Schwab-Pomerantz, CFP®, Board Chair and President, Charles Schwab Foundation; Senior Vice President, Schwab Community Services, Charles Schwab & Co., Inc.; Board Chair, Schwab Charitable

How Would You Rate Your Financial Know-How?

Shawn Glogowski on August 4, 2020

If someone asked you to rate your financial know-how on a scale of 1-7 (with 7 being the highest) where would you place yourself?

If you are like the Americans who participated in the 2018 Financial Investor Regulatory Authority (FINRA) National Financial Capability Study (NFCS), you would probably give yourself a pretty high score.

In that study, 76% of respondents placed themselves in the 5-7 range. The reality is that only 34% of those who participated could correctly answer at least four of five basic financial literacy questions on topics such as mortgages, interest rates, inflation and risk.

Curious about your own answers? Here’s your chance.

Click on this link at the bottom of this post to take the Financial Literacy Quiz. It not only gives you an immediate score, it shows you how you compare to others in your state.

Whether the quiz confirms your knowledge or serves as a personal wake-up call, the generally low results of the NFCS definitely demonstrate the need to improve financial literacy in our country. The good news is that there’s tangible proof that financial education works.

According to the 2018 NFCS, nearly half of Americans (49%) who have received more than ten hours of financial education report spending less than they earn, compared with 36% of people who received less than ten hours of financial education.

National Capability Study June 19.300.jpg

Research from the 2020 Council of Economic Education Survey of the States shows that students who receive financial education borrow more sensibly, from student and personal loans to credit cards.
Results from the PISA assessment show that young people and adults in both developed and emerging economies who have been exposed to high quality financial education are more likely than others to plan ahead, save and engage in other responsible financial behaviors.

The good news is that whether you are a parent, a teacher, an employer or a concerned member of your community, there are things you can do to help promote financial education for everyone in your community.

The Global Financial Literacy Center offers FastLane, with practical ideas and action plans for groups and individuals.
On CheckYourSchool.org, you can find the schools in your area that offer financial education and the ways you can start/reinforce local financial literacy programs.
DonorsChoose offers lesson plans and activities for educators that have been created by teachers in the field, for teachers. There are also opportunities to find school programs in your own community that you can support.

At the end of the day, there is a growing global awareness that financial literacy is an essential life skill that means not only greater prosperity, but better choices, increased confidence, and the ability to more successfully handle real-life financial challenges.

Financial literacy isn’t just about math. It is about attaining the knowledge and skills to confidently manage our everyday financial lives and the need for financial education, which is greater than ever locally, nationally, and globally

TAKE THE FINANCIAL LITERACY QUIZ

Parts of this blog were excerpted from an onlne post by Carrie Schwab-Pomerantz,CFP®, Board Chair and President, Charles Schwab Foundation; Senior Vice President, Schwab Community Services, Charles Schwab & Co., Inc.; Board Chair, Schwab Charitable

CARES Act Updates and Your Retirement

Shawn Glogowski on July 21, 2020

Historically, 70½ is the age when individuals have been required to take required minimum distributions (RMDs) from their retirement accounts, having until April 1 of the following year to take the first distribution.

The SECURE Act of 2018 changed that rule, raising the age for RMDs from 70½ to 72 while the CARES Act 2020 has made further significant changes. Below are important updates you need to know.

A retirement–related provision of the CARES Act 2020 allows the owners of certain retirement accounts — including inherited and beneficiary accounts — to skip otherwise mandatory RMDs for 2020. This provision applies only to defined contribution plans, including, 401(k) and 403(b) plans, IRAs, SIMPLE IRAs and SEP IRAs.

For those who want to take their RMDs, Cares Act Notice 2020-51 includes a sample plan amendment that provides participants and beneficiaries the option to receive their RMDs.

If you’ve already taken a now-waived RMD for 2020, you may be able to redeposit the funds. However there is a timing factor involved. Generally, such funds must be redeposited within 60 days of the distribution. Under the CARES Act 2020, the deadline for redepositing RMDs distributed in 2020 has been deferred to August 31.

Cares Act chalkboard retrirement.300.jpg

With respect to repayments, Cares Act Notice 2020-51 eliminates the once-per-year IRA rollover rule, which requires (and allows) only one rollover from an IRA in any 365 day period. It also removes this restriction for inherited IRAs.

The CARES Act 2020 further extends the rollover option to the IRA owner, a beneficiary spouse, and/or a non-spouse beneficiary, as long as the plan participant died in 2019 and the rollover occurs before the end of 2021.

Before the CARES Act 2020, money could not be withdrawn from a retirement account before the age of 59 ½ without incurring a 10% percent early-withdrawal penalty. Under the Act, individuals may be able to take one or more hardship withdrawals from their retirement accounts without penalty if they fall in to any of the following categories:

You, your spouse or your dependents are ill, having been diagnosed with COVID-19.
You’ve been hurt financially because you are out of work (quarantined, laid off, furloughed)or your hours are reduced.
You cannot work or get child care due to COVID-19.
You fall under another COVID-19 category established by the US Treasury Secretary

It’s important to note that such hardship withdrawals are limited to a total of $100,000 without incurring a penalty, unless you are at least 59 ½ years of age. Also, employers can place limitations on withdrawals from their 401(k) and 403(b) plans and those withdrawals are included in your taxable income over a three year period. You can avoid paying the income tax if you repay the withdrawals within the three years.

The same COVID-19 eligibility categories that govern hardshipwithdrawals also govern retirement account borrowing from current 401(k) and 403(b) plans. (Note: IRAs do not allow for this type of borrowing.)

Pre-Act, the maximum loan amount you could borrow was $50,000, or 50 percent of the vested balance in your account, if lower. Under the CARES Act 2020, you can borrow more. The maximum loan amount is the lesser of $100,000 or the vested balance in your account. Any loan repayments due between March 27, 2020 and December 31, 2020 are delayed for one year. However this one year delay is not factored in when accruing interest charges on the loan, which are based on the rules of your plan.

Good Business Fundamentals in any Economy

Shawn Glogowski on June 30, 2020

Over the last three months at Note, we have been engaged in virtual meetings with clients, working on ways to sustain their businesses in these trying, pandemic times.

Although a crystal ball might seem like the most needed tool in our advisor’s arsenal right now, here are some “good business” fundamentals we regularly share with clients that are important in any economy.

Hire the Best CPA, Attorney and Financial Advisor you can afford. Anything less can often become a big expense. Along the same lines, free advice often proves to be the most expensive.
Accumulate cash for opportunities and challenges. Keep in mind that other’s challenges may become your business opportunity.
Define the Core Values of your business and communicate them to all involved. Make sure to deliver customer service that clearly supports those values
Examine how to WOW your customer in a way that Amazon-at-your-door cannot.
Invest in the best employees you can attract.
Empower your employees to make decisions. Give them a budget for fixing mistakes and providing the highest level of service in their customer interactions.
Ask someone brutally honest and unfamiliar with your business or services to act as a customer and then grade their experience.

If you have questions or concerns about your business or need to discuss COVID-19 financial issues, we are here to help. Please contact Sarah Neuner at sarah@noteadvisor.com or (716) 256-1682 to make an appointment to meet in our office, via phone or virtually, online.

Retirement: Lifetime Payments or Lump Sum?

Shawn Glogowski on June 15, 2020

According to the U.S. Labor Department, in 1975 there were more than 103,000 employee pension plans in place as retirement income for Americans. By 2017, that number had dropped to about 46,700. Further, the number of private pension plans — which employers fund on behalf of workers — has also dwindled as companies have shifted the burden of retirement savings to their employees through 401(k) plans or other defined-contribution plans.

As a result of those changing realities, retiring workers now face their retirement decisions of lump sum or lifetime pension payments with concerns over whether their employers will be willing and/or able to meet the long-term commitments of their plans.

Most retirees like the idea of guaranteed income for the rest of their lives, which makes choosing continuing payments more appealing. However, today’s financial reality is that the stability of pension payments depend on the solvency of the sponsor. And while the federal Pension Benefit Guaranty Corporation (PBGC) would step in if a company could not meet its obligations, it may pay only a certain portion of an employee’s promised benefits.

The PBGC’s multi-employer insurance program currently coversthe pensions of 10.8 million Americans. The corporation also pays monthly retirement benefits, up to legal limits, to about one million retirees whose plans ended or failed. Concerningly, the agency’s most recent annual report shows that it is currently stretched to its limits, with forecasts of insolvency by the fiscal year 2025.

So what is the best choice to make? Below are some facts that may help in your decision-making process.

For those eyeing a lump sum due to fear of their employer going under or otherwise struggling to meet their pension obligations, it’s important to be aware of the fact that the lump sum amount offered is generally lower in comparison to the amount promised over time. That being said, because interest rates have generally remained low, recent lump sum offers have been bigger than if rates were high. .
In choosing to remain in the pension plan instead over a lump sum, the amount received may be fixed-for-life as pensions typically don’t have a cost-of-living adjustment.

Although some pensions offer spousal benefits (i.e., upon death, the husband or wife continues to receive a portion of the lifetime payments) there is nothing left for heirs. In contrast, in taking a lump sum, upon death there may be money that could be left to non-spousal heirs.
Choosing a lump sum and not rolling it into an individual retirement account or other qualified option will result in taxes on the distribution. Alternatively rolling the money to an IRA, will require decisions on the best ways to invest the assets to meet retirement income needs
An alternative option is to purchase an annuity, which would provide guaranteed income for either a set number of years or for the remainder of the investor’s life, depending on the type. However, it’s significant to keep in mind that to help meet those payout obligations, insurance companies invest in stocks, which means your investment is one step removed from market investments. Additionally, there is always the risk of the insurance company going belly up.

At the end of the day, any decision on retirement should be made in the context of the retiree’s financial plan and the long-term viability of all the companies involved.

Financial Planning Lessons

Shawn Glogowski on June 13, 2020

When the COVID-19 pandemic hit the United States, the lives of Americans were quickly turned upside down. Now, three months later, many have suffered personal financial disasters due to the loss of jobs and paychecks.

There are a number of financial lessons to learn from this pandemic, chief among them the value of planning and having emergency funds. Without such funds, you can be forced to tap other accounts, take out a loan, or face more dire and damaging financial options.

So what should you do if you do not have an emergency fund set aside to cover your expenses for a few months?

1) To begin, start one as soon as you can. Divert money into the account whenever possible. If you do already have an emergency account, continue to add to it.

2) Review expenses related to your job. Consider the money you spend on transportation costs, clothing, dry cleaning, entertainment, meals and those daily coffee runs. Where you can cut costs, take that money and put it in a place where it can grow.

3) If you are worried about losing your job, or if you already experienced a pay cut, find ways to reduce your overall spending by 20% or more. Separating essentials from non-essentials is a good way to eliminate things you do not need.

4) Do not overlook the importance of estate planning and investing in your retirement. Continue to contribute to your 401K, and if you have to borrow from it, do not drain it.

5) If the events of the last three months have encouraged you to think about drawing up a will, now is the time. Also, update any estate planning that needs to be done, as well as end of life directives.

All of the above are integral parts of proper financial planning which, as COVID-19 has reminded us, are important lessons to learn and follow.