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Money Matters

Taxing Times

By | 2021, Money Matters, Newsletter | No Comments

It is that time of the year! Tax season is upon us. As you gather your tax documents together, you may be wondering how you are taxed on investments. This is a good time to review how taxes apply to different account types.

Tax-deferred

Most everyone has some type of tax-deferred account, generally thought of as a retirement account(s). Money is invested in these accounts before taxes are paid. It grows over the years and is taxed when you take it out of the account through withdrawals and distributions. These accounts include Individual Retirement Account (IRA), 401(k), 403(b), SIMPLE IRA, SEP IRA, etc. It can also include non-qualified tax-deferred annuities where the initial investment has been taxed, but the tax on the growth is deferred until you take a withdrawal from the account.

Money taken from tax-deferred accounts is taxed as ordinary income. That means it is taxed at your marginal-income tax rate.

Restrictions apply to these accounts. For instance, the amount of money you can invest each year is limited based on the account type and your age. If you take money out before you are age 59 ½, you will pay an early withdrawal penalty of 10%. Furthermore, you must begin taking money out of these accounts by age 72. This is known as a Required Minimum Distribution (RMD), and you will be subject to a penalty if you miss the deadline.

Taxable

Taxable investment accounts can be accessed at any time without restriction. They are often used to reach a specific goal or increase savings that will be used to supplement income during retirement. The initial investment has already been taxed, and you will only pay tax on the growth.

The tax rate is determined by the length of time you hold the investment. If you hold a specific investment within a taxable account for more than one year and one day, you will be taxed at lower capital gains rates. If you sell an investment in less than one year, taxes are calculated at your ordinary income-tax rate. Dividends received are generally taxed as ordinary income as well.

You can manage taxes within the account by offsetting gains and losses. This strategy can be helpful in reducing taxes.

You are free to add as much money as you want to a taxable account, and there are no requirements to take money out of this type of account regardless of your age.

Tax-free

Growing money without taxes is a wonderful way to plan for retirement. This can be done in a Roth IRA or Roth 401(k). Money is invested in the account after taxes have been paid. Any growth earned over the years is tax-free. It does not get better than that!

There are differences between the two types of Roth accounts. The amount of money you can contribute is limited by the type of account and your age. A Roth IRA has no required distribution date. You can leave the money in the account until you are ready to use it or pass it to your heirs tax-free. Unfortunately, the Roth 401(k) is subject to Required Minimum Distributions at age 72. This can be avoided by rolling the Roth 401(k) to a Roth IRA before the year you will turn 72.

For details on marginal tax rates, capital gains rates, and contribution limits, visit us at SmedleyFinancial.com and browse the updated 2021 tax information. You can also call us at 800-748-4788. Happy tax season!

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Are You Thinking of Refinancing?

By | 2021, Money Matters | No Comments

With interest rates at historic lows, there is a lot of talk about refinancing current mortgages. If you own a home, this is a great time to evaluate your loan and ensure you have the best terms available.

While interest rates across all loan types may be low, not all loans are the same. Here are some tips to help you understand the nuances and determine if you should refinance a first mortgage, take a home equity loan, or open a home equity line of credit.

Mortgage loans, referred to as first or second mortgages, are paid over a fixed period of years: 30, 20, 15, 10, or less. The interest rate can be fixed for the entire loan term or variable, changing based on the Prime rate. While rates are low and you can spread the payments over many years, keep in mind that you will pay less in overall interest if the loan term is shorter, say 15 years, versus a longer-term, say 30 years. While the payment may be higher, the difference can save you tens of thousands of dollars.

In this example, the savings for taking the shorter-term loan is $126,450. Not to mention that you are out of debt in half the time. This example does not include taxes, insurance, or any associated closing costs.

I realize that locking yourself into a higher monthly payment may limit your monthly discretionary cash flow. It does not have to be all or nothing. Choose the mortgage term that helps you save as much as possible and still maintain a flexible cash flow—making an extra principal payment when possible will save you interest and shorten the term of the loan.

Home equity loans allow you to borrow based on the equity in your home. These loans are gaining in popularity as home values continue to skyrocket. The increasing value of your home has likely created a pool of equity. Tapping into that equity for home improvements, such as upgrading a kitchen or adding a room or garage, is a favorable option compared to borrowing on a signature loan or credit card. Home equity loans have a fixed loan period, up to 10 or 15 years, and offer both fixed and variable interest rates.

Home Equity Line of Credit loans, referred to a HELOCs, allow you to use the equity in your home in another way. These loans offer a fixed credit limit that you can tap into as needed. The interest rate is variable and can increase or decrease over time. Repayment of the loan is more like a credit card in that there will be a minimum required payment each month, such as 1.25% of the loan balance. The trick here is discipline. You must form a plan to get the loan paid in a certain period. Otherwise, you will find that making the minimum payment has cost you a great deal of money.

After looking at the loan options available, consider what you will pay in closing costs. You may be required to pay for an appraisal, and sometimes a lower advertised rate requires that you pay points to secure the loan. This means you will have to come up with a percentage of the loan amount at closing.

Choosing between a fixed or variable rate can be difficult. I will say this; it is more likely that interest rates will go up in the future rather than down. Variable rates are generally lower than fixed rates and may make sense if it is likely that interest rates will go down. In the current environment, fixed rates are so low that you can feel confident you are locking in a good rate for the term of your loan.

Before you move forward, take the time to compare the facts on your current loan versus a new loan. The closing costs associated with a new loan may cost you more than keeping the current one. If you have questions, please reach out to our team. We can help you assess your options and determine the best course of action.

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The Sandwich Generation Expands

By | 2020, Money Matters | No Comments

Living in the Sandwich Generation describes more Americans today than it did in the past. The Sandwich Generation used to describe women in their 30s and 40s who are caring for children and their aging parents.

Now that life expectancies have increased, and more adult children are taking longer to reach independence, the definition has expanded to include women and men in their 50s and 60s who are supporting aging parents and adult children.

In many cases, members of the sandwich generation are busy holding down their own full-time job. Being squeezed by dual responsibilities can cause financial and emotional stress for those caught in the middle.

Here are some strategies that can help as you prepare for this phase of life.

Whether you are allowing a family member to live in your home or helping to cover some of their expenses, there will be a financial impact on you. These additional expenses may come as you are preparing to retire or have just retired. It is crucial to set boundaries and share the expenses where possible.

It is imperative that you know your limits. Create a personal budget that outlines your expenses. This will provide a clear picture of what you can chip in financially to help when needed. Be careful not to jeopardize your financial security in the process of helping your family.

For older family members, review their expenses and help them establish a budget. As we age, it can be difficult to remember how we have spent money throughout the month or what future commitments we may have. Make sure the proper legal documents are in order, so you can assist in the management of their finances. Check with aging services to see if financial assistance is available to help your older family members. Get others involved and give them an opportunity to help when possible.

For adult children, setting limits from the beginning will help you manage this difficult financial situation. Have an open discussion with your adult child and let them know you have financial limits and what will be expected from them. The goal is to help them become financially successful adults.

Finally, remember to think about your needs. Caring for others can take a toll financially and emotionally. Getting adequate sleep, eating a nutritious diet, and exercising will increase your ability to cope. Most importantly, do not feel guilty about taking time for yourself. Taking time away from the demands will help you recharge and be in a better position to care for those around you.   Let us help you. We have an abundance of resources available to help you through this challenging phase of life. Please reach out to us. We would love to share our expertise and support.

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What is in a name?

By | 2020, Money Matters, Newsletter | No Comments

When it comes to designating a beneficiary – everything!

It is hard to remember how many times we have named a beneficiary on a document or account. I would say it is even harder to remember who we named. The phrase “out of sight, out of mind” rings true.

The reality is the person or entity named as the beneficiary can trump your plans. Even after spending time and money creating a will and trust, you may have missed an important step. If the beneficiary is not named correctly or updated to meet changes in your plans, your desires will not be met.

Last month our Just for Women webinar focused on Wills and Trusts and featured Kent Brown of Strong & Hanni Law Firm. He shared several threats that can wreck an estate plan. One of those threats was naming beneficiaries. If you missed the webinar, you can view it on our website under Just for Women.

Here are some things to keep in mind when naming a beneficiary.

Naming one child as the beneficiary – We have experienced situations where a single child was named as a beneficiary. The intent was that the named child would split the money among the other children of the deceased. Unfortunately, the child often feels strongly that the money was intended for them alone and therefore does not distribute any money to their siblings. Do not assume a child will feel inclined to distribute the money as you wanted. If you intend that all your children will receive a portion of the account, name them all as a beneficiary and specify their portion. If your child splits the money as intended, they may have a problem with taxation. If the account was a qualified account, the full tax burden falls on the named child. This could push them into a higher tax bracket, reducing the amount distributed to siblings.

Naming a spouse and a child as primary beneficiaries – This often happens in error or because you believe your spouse will need help handling the money at your demise. Naming a spouse as the primary beneficiary gives them full access to the account. Including a child as an additional primary beneficiary does not make them a joint owner in the asset. Instead, it transfers the portion or share listed directly to them as an owner. They are under no obligation to share the money with the surviving parent. This can lead to serious financial consequences for the surviving spouse.

Naming a special needs child or adult Receiving money as a beneficiary can impede a special needs individual from receiving benefits from assistance programs. A special needs trust can help ensure the individual gets the money intended for them and names someone to handle the money on their behalf, creating a layer of protection.

Not naming a contingent beneficiary – Unfortunately, your primary beneficiary may predecease you, or you may die in a common accident. If there is not a contingent beneficiary listed, the assets will have to go through probate. In essence, you have decided the asset will be handled according to your will, if you have one, or that the courts will decide how your assets will be divided. This can cost the executor of your estate a great deal of time and expense.

Not naming your trust – A common mistake after establishing a trust is neglecting to name the trust as the beneficiary or assuming the attorney has taken care of the change. You are the only one who can sign the document naming beneficiaries on your accounts.

Not updating beneficiary designations – There are so many accounts that require a beneficiary designation that is it easy to overlook an account when you have a significant life change. This could be marriage, divorce, death of a spouse, the birth of a child or newly adopted child, or the death of a named beneficiary. We have uncovered too many instances where the divorce took place years prior. However, the ex-spouse was still listed as the primary beneficiary on the retirement account at the employer. This type of error can cause unintended heartache and financial trouble for a surviving spouse.

Make it a priority to review the beneficiaries on your accounts now. Then each year, take a few minutes to review the current beneficiaries and make changes if needed.

Here are some of the accounts to consider when reviewing your beneficiaries:

  • Retirement accounts: IRAs, Roth IRAs, 401(k), 403(b), 457, SIMPLE IRA, SEP IRA
  • Employer’s pension plan
  • Annuities
  • Life Insurance: Individual policies and group policies

Understanding when to name an individual and when to name a trust can be challenging. If you have questions or need assistance, please contact the SFS Wealth Management Team at 800-748-4788.

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Living a Financially Balanced Life

By | 2020, Money Matters, Newsletter | No Comments

Applying a balanced perspective has an impact in many areas of our lives, from eating to working to playing. Finances, today and in the future, should receive the same balanced approach.

When thinking of our financial plans, we tend to look to the future, but what about today? It is important to establish financial goals and work towards them, but it is also essential to live your current life with joy.

We work hard and save wherever possible with a goal to enjoy life in retirement. This is commendable and vital if we want to maintain our lifestyle into retirement. However, it is too often that people plan for future adventures and then are not able to enjoy them because of health issues or even death.

Keep in mind the little things.
To stay balanced within your budget, or spending plan, be sure to give yourself some mad money. I am not proposing that you throw caution to the wind, but within your monthly budget, permit yourself to spend a predetermined amount on something that brings you joy even if that means getting an ice cream cone or pedicure. Nothing can take the wind out of your sails or blow up your spending plan quicker than eliminating all of the little things that make you happy.

Enjoy adventure along the way.
Rather than thinking you will take a huge trip when you retire, include adventure and fun in your life now. When you look back on your life, the memories you have with your family and friends will be what you remember. I can honestly say I have not had a client reminisce about days they spent in the office or attending business meetings, or cleaning the house. They talk about time spent with family, traveling, charity work, or doing something they love.

One of our motivations is to help our clients create Life Centered Plans. This is different from a typical financial plan because it focuses not only on saving for future goals but also helping clients use the money they currently have to do things that bring them joy now.

We all have a limited time left to live our lives. I challenge you to spend that time living a financially balanced life!

If you would like more information on Life Centered Planning, contact us at 801-355-8888.

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A Tribute to Money Smart Women and Moms

By | 2020, Money Matters | No Comments

May brings a time to reflect on women and the influence they have or have had in our lives. Whether it is a mother, grandmother, sister, daughter, or a good friend, we can all think of someone we love that has inspired us.

Helping others is an innate, nurturing quality of most women. If we have the knowledge, we want to share it with those around us. This is especially valuable when it comes to sharing our knowledge of money.

It was not that long ago that people did not talk openly about money. Thankfully, times have changed. Money has an impact on each of us, from earning a living, to buying groceries, to paying for college, to saving for retirement. It touches almost every aspect of our daily lives, and at some point, we developed ideas and values surrounding money.

Looking back, I can see how the lessons I learned at an early age helped to create a foundation for my financial decisions today – saving, living within my means, investing in my future, and giving back, all principals that were taught to me when appropriate. The lessons do not stop there. How we earn money is important as well. Do something you enjoy, give it one hundred percent, and treat others fairly, are some of the cornerstones I try to build on.

The decisions we make surrounding money are unspoken examples to those who are watching, and the message we send is important. Think of your situation, who helped form your financial values?

You can share your money smarts with others by talking openly about money and sharing your experiences, good and bad. Stories are a great way to do that. It helps others connect with the message you want to convey, and it makes you seem more relatable. Remember, no one is perfect; sharing your hardships and failures is just as important as sharing your successes.

We make a difference in the lives of others, even if we are not mothers. If we share our experiences, we can help others make better financial decisions and become successful, financial speaking.

I admire you for mentoring those around you. You are generous beyond measure, with your time, talents, knowledge, and, when possible, your money.

I wish each of you a wonderful Mother’s Day.

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Happy Spring 2020!

By | 2020, Money Matters | No Comments

The year seems to be moving at a fast pace, and May will be here before we know it. Mark your calendars and plan to attend our annual Just for Women conference.

Just for Women Conference
The Gathering Place at Gardner Village
Friday, May 8th, 2020
9:00 a.m. to 12:30 p.m.

This year’s event will be packed with fun. We will start the morning off with a delicious breakfast, followed by educational and entertaining sessions.

Women love to nurture. We find satisfaction in helping other women improve their lives. We are excited to announce our 2020 Just for Women giving back partner – Days for Girls.

This remarkable non-profit organization helps many women and girls around the world find health, safety, and dignity. During the conference, we will have the opportunity to provide hands-on help.

If you have not heard their story, take a minute and visit their website at https://www.daysforgirls.org or watch this short video:

Days for Girls – Every Girl. Everywhere. Period.

Watch for your invitation to arrive in April. Seating will be limited, and RSVP is required.

We look forward to seeing you there!

Sincerely,

Sharla J. Jessop, CFP®
President

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Happy New Year

By | 2020, Money Matters, Newsletter | No Comments

Making 2020 Count Financially 

I’m not one to harp on New Year’s Resolutions, but I do want to make sure you are aware of opportunities that will help you reach your financial goals. I thought I would share a couple of tips you may want to think about, possibly share with your friends and family, and implement for yourself.

Define your goals

From year-to-year, the top investments are going to rotate. We are often asked, “What should I invest in?” A better question may be, “What am I investing for?”  Defining a goal and then matching your investment strategy to that goal will help you stay on track. Keeping your focus on the goal rather than day-to-day movement in the market will help you manage the emotional side of investing. This is critical when market volatility increases.

Put investing on autopilot

We find that over time investors who have a systematic approach to saving are more consistent in their efforts. Waiting until the end of the week, the month, or the year before deciding to put money aside can diminish the urgency of saving and your ability to reach a goal. The 401(k) is a wonderful example; every pay cycle money goes directly into an investment for the future – automatically. Once you make the initial decision to contribute, no further action is required. The same can be done in an account outside of your retirement plan.

Increase contributions for 2020

If you are not making a maximum contribution to your 401(k), consider increasing the amount you will contribute this year, even if it’s a small increase. The limit for 2020 increased to $19,500. Often employees contribute only enough to get the employer’s full matching contribution – which is great! However, with fewer employers offering pension plans, the burden to save for retirement falls to the employees. Saving smaller amounts early on makes a significant difference in how much you will have when you get to retirement. If your employer doesn’t offer a 401(k), consider putting away up to $6,000 in an IRA or Roth IRA.

Make up for lost time

For anyone who will be 50 or older this year – there is at least one advantage – you can make up for lost time. The catch-up provision allows you to sock away additional money for the future. The 401(k) catch-up limit increased in 2020 to $6,500. For IRA and Roth IRA, the catch-up remains at $1,000.

Simplify your portfolio

It is not unusual to have several jobs throughout the course of your career. That being said, having multiple plans with past employers can be cumbersome and difficult to monitor. Consider consolidating these plans, making it more effective to track your investments, and determine if they are on track to help you reach your goals. 

We wish you a prosperous New Year!

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Are you feeling anxious about the market?

By | 2019, Money Matters, Newsletter | No Comments

If your answer is yes, you are not alone. We are emotional creatures. When things get rocky, or we perceive they are rocky, we can make decisions that feel good at the time, but in the long run, are not in our best interest. Let me share an example you may relate too.

You have worked hard and saved diligently for years, and finally, you have reached your financial goal, be it: saving for retirement, building a nest egg for a future purchase, or another purpose altogether. You feel a sense of relief – I did it! Once you reach this target number, every emotion you have regarding the market going forward may be tied to that target number.

How do you feel when you see that number going down? For some, the feeling is panic! All we can think is, “It took me forever to get to this point and I cannot afford to lose anything.” This is an emotional response. You have abandoned future perspective and are focusing only on the here and now. We often see this response to market volatility when someone is getting close to retiring or has retired. Suddenly, our long-term perspective is tomorrow afternoon. We have completely discounted the value of market performance over time.

I realize you may not enjoy looking at charts but bear with me for just a minute. Look at the two charts below. How do you feel about the chart on the left? How do you feel about the chart on the right? Believe it or not, the chart on the left is merely a subsection, representing a 90-day period, from the chart on the right, which illustrates a 5-year period. The difference is when viewing volatility over a longer time period it feels more comfortable than it does when viewed in a short period of time.

It is so easy to adopt a myopic view when emotionally, we feel like we should flee to safety. What the two charts teach us is that volatility is subjective and can be controlled by how often we look at our account balance. Now, look at the next two charts showing the exact 5-year period. The chart of the left represents the market value at the end of each quarter. The chart the right represents the market value each day. My guess is you feel better about the smoother chart to the left.

Managing your emotions during times of increased market volatility is challenging but can be done. Here are a few tips to help you through the volatile times.

1) Try to review your account no more than quarterly.

2) When you hear concerning news in the media remember; their job is to sell headlines and stories not to give personalized investment advice to you.

3) If you are feeling concerned, reach out to us. That is why we are here.

We have information regarding your financial situation, your financial plan, your investments, and the markets. We will give you advice and perspective that will help you stay on track.

*The illustrations are for educational purposes and are not indicative of an actual investment return. The Standard and Poor’s 500 (S&P 500) index is often considered to represent the U.S. stock market. Investments cannot be made directly into an index. Historical performance does not guarantee future results.

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What Women Should Know About Social Security

By | 2019, Money Matters, Newsletter | No Comments

Retirement is on everyone’s radar. Whether you are preparing for a future date or beginning retirement now, you need to know where your money will come from once the paychecks stop rolling in.

One retirement income source that is very confusing is Social Security. It is fraught with complicated options. From understanding how your benefit is calculated to determining the best time to begin receiving your benefit, the process can be painful. I want you to understand the nuances so you can be informed about your options and better prepared to make critical decisions.

To begin, almost everyone reading this article is eligible to receive Social Security benefits in some form. However, eligibility for retirement benefits is based on several factors. If you have worked at least 10 years, you are eligible for benefits based on your own earnings. If you are now or have been married, you may qualify for benefits based on a spouse’s earnings. The challenge is knowing which benefit to claim and how to maximize your income.

Something many women are surprised to know is that Social Security retirement benefits may be available even if you never worked outside of your home. If you are now or have been married, you can claim a benefit based on your spouse’s earnings record. This is in addition to what your spouse or ex-spouse will receive. At your full retirement age (FRA), you can receive 50% of your spouse’s benefit at their FRA. For example, if your spouse’s benefit at FRA is $1,800, you would receive $900 monthly. A spousal benefit does not increase beyond FRA. 

If you are divorced and have not remarried, you may be entitled to a spousal benefit. To receive this benefit, you must have been married for at least 10 years. You are entitled to the benefit even if your ex-spouse remarries.

Timing of benefits has a lifelong impact, and you should have a well thought out plan before signing up. For instance, beginning your benefits at the earliest age possible, age 62, will lock you into a reduced benefit for the rest of your life. To receive your full benefit, you must wait until you reach full retirement age. Stop thinking age 65 (that’s for Medicare). When it comes to Social Security, FRA is somewhere between age 66 and 67 – based on the year you were born. But it gets better, for every year you wait beyond your FRA up to age 70, your benefit will increase by 8% – locked in for the rest of your life.

The following chart shows a monthly benefit of $1,800 taken at a full retirement age of 66, and how it would change if taken earlier or later. For example, if taken at age 62, the benefit would be reduced to $1,350, and if taken at age 70, the benefit would increase to $2,376. That’s significant! A $1,026 difference each month – $12,312 annually.

There can be additional downfalls when taking Social Security early. If you take Social Security benefits before your FRA and you continue to work, you may be penalized. If you are under FRA for the entire year, $1 of your benefit will be withheld for every $2 you earn over the annual earnings limit ($17,640 in 2019). The earnings limit is higher in the year you reach FRA ($46,920 in 2019). The bottom line – you may not be getting as much as you think by taking your benefit early.

Understanding Social Security can be difficult and making the wrong decision can be costly. Don’t go it alone. Let us help you analyze your options so you can make the best possible choice regarding your benefit and future income.

If you have not started your Social Security benefit and are over age 55, watch for our Social Security seminar and webinar coming in the fall

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