Gifts for Grads

A great gift for college or high school graduates is William Bernstein’s new book:  If You Can:  How Millennials Can Get Rich Slowly.  This short (27 page) e-book is packed with essential information for those (of any age) just starting to save.   The price, 99 cents at Amazon, leaves room for another great gift:  Shares of Vanguard’s Total Stock Market ETF (VTI), which would make a great foundation for any portfolio.

Ally Bank’s Early Withdrawal Penalty

Ally Bank will change its early withdrawal penalty effective December 7, 2013.  CDs purchased or renewed on or after that date will have the new schedule.

I have recommended Ally Bank’s 5-year CD product for several years.  With a 60 day withdrawal penalty, it was a great place to park emergency funds.  For a very small cost, investors could access their cash early – whether it be for spending needs or for a higher-rate product.  It may still be a decent place for some of your cash, but the withdrawal penalty on the 5-year CD is increasing to 150 days’ loss of interest from 60 days.  The 4-year CD will increase to 120 days’ loss of interest and the 3-year CD will increase to 90 days’ loss of interest.

Please be aware of these changes and evaluate CD rates and withdrawal penalties carefully.

Parents of College Kids…and anyone needing an updated POA for Healthcare or Property:

Strohschein Law Group is dedicating the longest day of the year, June 21st, to provide awareness and help in the fight to end Alzheimer’s.  Their staff will be available by appointment and walk-in to prepare your Durable Powers of Attorney for Healthcare and Property – FREE of charge!

9:00 a.m. – 5:00 p.m. at the SLG office in St. Charles

To sweeten the deal, they will send you off with a root beer float to enjoy the first day of summer!

All they ask is that you leave a donation for the Alzheimer’s Association.

See attached flyer for details:  SLG Alzheimer’s Longest Day Event with Outlook EEM pdf

IL BrightStart 529 Plan Ranks Well (at least the Vanguard side does!)

Allan Roth recently wrote an article for MoneyWatch on the CBS news website, comparing 529 Plans nationwide.  He took a look at the cost for age-based investment options within both advisor-sold and direct-access 529 Plans, and found the IL BrightStart 529 Plan is in the top 5 for low-cost plans.  Add our state’s small tax deduction for contributions, and it becomes one of the better plans offered in this country.

If you are a Clarus client with college-bound children, chances are good that you already have the Vanguard selection within your IL BrightStart 529 Plan.  If you don’t have Vanguard funds within your 529, maybe it’s time to revisit your choices.

Link to Allan Roth’s article: Top five 529 college plans – CBS News

2013 Retirement Contribution Limits and Tax Changes

With so much drama regarding the “fiscal cliff,” I thought many of my clients would appreciate some “cliff notes” on the changes they’ll see in 2013.  But first, a quick look at some of the new retirement plan contribution limits for 2013:

401k, 403b employee contributions:  $17,500  (up $500 from last year)
401k, 403b age 50+ catch-up contributions:  $5,500 (no change from 2012)

IRA, Roth IRA contributions:  $5,500 (up $500 from last year)
IRA, Roth IRA age 50+ catch-up:  $1,000 (no change from 2012)
Roth IRA Income phase-out range for joint filers: $178,000 – $188,000

TAX CHANGE HIGHLIGHTS (Here are a few major changes.  If anyone would like the 7-page summary of tax changes, please email & I’ll forward it to you):

1.  Payroll taxes will increase 2% for all wage-earners.

2.  Tax rates will stay the same unless your annual earnings are above $450,000 (joint filers) or $400,000 (single filers) who will now fall into the 39.6% tax bracket.

3.  Capital Gains and Dividends will be taxed based on your tax bracket:
– Tax rate BELOW 25%:  0% tax
– Tax rate of 25% or greater (but earnings less than $450,000 joint):  15% tax
– Earnings of $450,000 joint:  20% tax rate plus 3.8% healthcare surtax rate.

4.  Permanent AMT relief:  The AMT exemption amount for joint filers rises from $45,000 to $78,750, and will now be indexed for inflation.

5.  Personal Exemption Phaseout and Limitations on Itemized Deductions (previously suspended) are reinstated for households making $300,000 ($250,000 for single filers) or more.

6.  Tax-free distributions from IRAs for charitable purposes, which expired at the end of 2011, is now revived for 2012 and continued through 2013. Because 2012 has already passed, a special rule permits distributions taken in 2012 to be transferred to charities for a limited period in 2013. Another special rule permits certain distributions made in 2013 as being deemed made on Dec. 31, 2012.

Year-end Financial Planning Strategies

Most “Fiscal Cliff” financial strategies for year-end reviews are just common-sense financial planning strategies.  Financial crises seem to be the norm, and the possibility of rising taxes will be real for many years to come.  With that in mind, here are some timeless financial suggestions that should be reviewed annually:

  • Tax-advantaged Accounts: Maximize contributions to traditional and Roth 401(k)s, IRAs, and 529 college savings plans.
  • Tax-efficient Rebalancing: Use tax-advantaged accounts to rebalance an asset allocation or to sell appreciated positions. Use index funds and index ETFs, which have high potential for tax efficiency.
  • Asset Location:  Tax-efficient investments belong in taxable accounts and tax-inefficient investments belong in tax-advantaged accounts.
  • Tax Loss Harvesting:  Realize losses on stock while substantially preserving your investment position. There are several ways this can be done. For example, you can sell the original holding, and then buy back the same securities at least 31 days later.  Contact Clarus for details.
  • Roth Conversion: Convert money from a traditional IRA to a Roth IRA if doing so is expected to produce better long-term tax results for you and your beneficiaries. Distributions from a Roth IRA can be tax-free but the conversion will increase your adjusted gross income in the year you convert.
  • Required Minimum Distributions:  Take your RMD from your IRA or 401k plan (or other employer-sponsored retired plan) if you have reached age 70 1/2.  Failure to take a required withdrawal can result in a penalty of 50% of the amount not withdrawn.  If you turned age 70 1/2 in 2012, you may be able to delay the required distribution to 2013, but if you do, you will have to take a double distribution in 2013—the amount required for 2012 plus the amount required for 2013. Think twice before delaying your distribution—bunching income into 2013 might push you into a higher tax bracket or have a detrimental impact on various income tax deductions that are reduced at higher income levels.
  • Flex Spending Accounts:  Increase the amount you set aside for next year in your employer’s health flexible spending account (FSA) if you set aside too little for this year.
  • W-4 Withholding:  Increase your withholding if you are facing a penalty for underpayment of federal estimated tax.  Doing so may reduce or eliminate the penalty.
  • Give Gifts: Use gift and estate tax exemptions while current tax laws remain favorable.

Fiscal Cliff: A Primer

Expiring tax breaks coupled with government spending cuts scheduled to begin with the new year have led to concern that a recession will result.  The lame-duck Congress meets this week, and while I don’t have high expectations for a clear tax policy by year-end, I am hopeful that some of the expiring tax breaks (listed below) will be addressed.

Expiring Tax Breaks:

  • 6 tax brackets (10, 15, 25, 28, 33, 35) will revert to 5 tax brackets (15, 28, 31, 36, 39.6)
  • Long-term Capital Gains maximum tax rate will increase from 15% to 20% and dividends will be taxed as ordinary income
  • The temporary 2% reduction in the Social Security portion of the FICA payroll tax will expire at year-end
  • Lower AMT exemption amounts will disappear
  • High AGI households will lose itemized deductions and dependency exemptions
  • The estate tax will revert to the top rate of 55% with a $1 million exemption
  • The IRA charitable rollover/distribution has not been approved for 2012

New Taxes on High Income Individuals ($250,000 AGI MFJ, $200,000 AGI Single):

  • Payroll tax increase of 0.9% for Medicare
  • 3.8% Medicare contribution tax on unearned income

Critical Illness Insurance: An Alternative to Long Term Disability Insurance

Are you past the optimum age to be approved for Disability insurance coverage, but you plan to continue working until age 70? I recently learned from Low Load Insurance Services of a viable alternative to long term disability coverage for critical conditions such as cancer, heart attack, organ transplant, kidney failure, paralysis, loss of sight, speech, or hearing, advanced Alzheimer’s, coronary artery bypass, and stroke.

Critical Illness plans fill a niche for people: Read more

Medicare – Time to Validate Your Choice

It’s open enrollment time through December 7th for Medicare participants.   Clients who have already selected a Medicare plan should take a few minutes to compare your existing plan to others currently offered.  Validate your costs and coverages.  Go to for a quick review and comparison of your plan.

Tax Planning for 2013

We face the prospect of a darker tax climate in 2013 for investment income and gains. Under current law, higher-income taxpayers will face a 3.8% surtax on their investment income and gains. Additionally, if the EGTRRA and JGTRRA sunsets go into effect, all taxpayers will face higher taxes on investment income and gains, and the vast majority of taxpayers also will face higher rates on their ordinary income.  Stay tuned for specific information as year-end approaches.