By Glenn J. Downing, MBA, CFP®

In this blog post I want to go just a little bit beyond the basics of traditional IRAs and how they work. 

What are Traditional IRAs?

An IRA is an individual retirement account by definition, with the emphasis on individual. One IRA means one owner, so there can be no joint titling. In order to contribute to an IRA you must have earned income. That is, income from compensation defined as wages, salaries, tips, alimony, and separate maintenance payments. These are all earned income. Income from capital gains, dividends, and interest is not considered earned income by the IRS – they classify it as investment income.

How Much Can I Invest?

Your contribution limit is $6000 per year (2020). If you’re over 50 an additional $1000 catch up contribution is allowed, so the limit becomes $7000.  Age limits on contributions have been repealed in the 2020 CARES Act, so as long as you have earned income you can contribute.

What’s the...

By Jonathan G. Cameron, CFP®

Most people are familiar with the 401k, but what’s a 403b? Basically a 403b is a retirement plan that is sponsored by a 501c3 organization, meaning a not-for-profit employer. A local school board or hospital are good examples. The employee invests in mutual funds or annuity contracts – the only choices available. If annuity contracts are the only investment choice, the plan is likely administered by an insurance company, and can also be known as a TSA, or tax-sheltered annuity.

Money can go into your account from two sources: deferrals from your paycheck (money that you could have taken in cash) and your employer can also make contributions. The employer’s contributions can be discretionary or according to a match formula. Say the employer will offer you 50 cents on the dollar of whatever you contribute, up to 6% of your earnings. That’s a fairly typical formula. We’ve seen some out there more generous, and some not...

by Jonathan G. Cameron, CFP®

Nobody plans for a disability. In our experience, people are more willing to incorporate life insurance into their financial plan than disability insurance. Why is this? Let’s first get into the differences between disability and life insurance.

Disability Insurance vs. Life Insurance

Here are a few key differences between these two types of insurance:

• With a life insurance a policy claim, your insurance company pays others at your death. A disability income claim pays you, maintaining your family’s financial well-being during an illness or injury.
• Death is a certainty, so your beneficiaries will get paid the life insurance death benefit. A disability benefit pays only when you have a covered injury or illness, insuring against the loss of earned income.
• Traditionally, a life insurance death benefit pays beneficiaries in a lump sum. A disability policy typically pays a monthly income to the policyholder up until age 65.
• Many life...

By Glenn J. Downing, MBA, CFP®

I’ve been pondering this.

This Page is Intentionally Left Blank

It sort of hit me one day after having noticed This Page is Intentionally Left Blank in clients’ brokerage account statements.

Seems to me that if there’s printing on the page, it is not blank, is it?  Brokerage statements go on for pages and pages.  Who formats these things?  Why not print on it and save a tree?

Sometimes business written communication makes me crazy.  Why not say use instead of utilize? Or even worse, why not say complete instead of effectualize? Seems the more jargon the better.  Or how about our deliverables?  Deliverables indeed!  We sell deliverables? I though we sold planning and investment management.  

Personally, I’d rather eschew obfuscation. (That’s a joke.)

Ok, I'm ranting.  I guess we should close the flight plan on this.  (Really? Why not simply conclude?)

Just...

By Glenn J. Downing, MBA, CFP®

This blog post is the second of a trilogy having to do with Social Security.  The first is about Social Security Benefits; the third is, Will Social Security will be There When I Retire?  

Oh yes. Many new Social Security retirees get a big surprise when they learn about the taxation of Social Security benefits. This started during the Clinton administration. That administration added a formula to the tax code to determine how much, if any, of your Social Security benefit is subject to tax. Previously Social Security benefits did not count as taxable income at all.

Provisional Income

The formula used to determine how much of your benefit is taxable is the provisional income formula. It boils down to this: add all of your income together – wages, business earnings, tax-free bond income (yes – non-taxable income is included in this formula), IRA distributions – everything – plus ½ of your Social Security...

by Jonathan G. Cameron, CFP®

The Thrift Savings Plan, or TSP, is the equivalent of the 401k for federal government employees. My intention here is to cover the main highlights of this fantastic retirement benefit. Much more detail is found on the TSP website.

As in a 401k, you contribute pre-tax money into a Thrift Savings Plan. Earnings in the account are tax-deferred. You are taxed only when you withdraw funds in retirement. If you work long enough, consistently contribute to your plan, and invest appropriately, you can potentially retire comfortably.

Thrift Savings Plan: Military and Non-Military Accounts

This post is for non-military TSP retirement participants. The TSP offered to those in the military is different. Elsewhere I discuss the benefits of a Thrift Savings Plan retirement account as a High-3 and as a BRS (blended retirement system) participant.

FERS – the Federal Employment Retirement System

If you are a federal civilian employee and began employment after...

By Glenn J. Downing, MBA, CFP®

Increasingly as we work with people of retirement age, we’re hearing a new concern: What happens when my mother runs out of money? This is something relatively new. Those in their middle ages used to be called the sandwich generation, because they were in the middle, caring for both their children and their parents. But this is something new . . . we’re speaking of people in their 60’s and 70’s caring for parents in their 80’s and 90’s.

By the time we hit our latter 60’s, most of us hope that the retirement nest egg is firmly in place, children are married off, and grandchildren are a joy. But since we’re all living so much longer, caring for one’s very elderly parents is now a large financial planning topic.

Medical Issues are a Primary Cause for Concern

Too often we see a client who is concerned about his parents outliving their assets. A parent with a long and debilitating illness is a common...

By Glenn J. Downing, CFP®

(Note to the reader:  I originally posted this piece in mid-March of 2020.  Now I'm reviewing it at the end of April 2020.  Hit the nail on the head, didn't I?)

I’m sure you’ve heard the term before:  asset bubble.  Sounds ominous, because a bubble is generally something that’s going to pop.  On the other hand, I think of bubbles with champagne.  So there are two images, both conjuring up a party that has to end at some time. 

What does the term refer to in terms of market valuations?  It means simply that at some point assets will be trading at a price that’s too high, and that the price will come down – maybe gradually, or maybe by a pop.  Why is there so much in the financial literature today about asset bubbles?  Because there appears to be a big asset bubble in the making.

Correction vs. Recession

Before I go on, let me define two terms: 

• A market correction...

by Jonathan G. Cameron, CFP®

In the previous installment of this 2-part series, I discussed how you can prepare yourself for a mortgage application in terms of your credit report and credit score. In this installment I’ll look at the criteria that lenders use when evaluating your application.  

Where Can You Get a Mortgage?

You may obtain a mortgage from a commercial bank, a savings and loan institution, a mortgage company through a loan originator, or even a private individual.

How Much Will They Lend You?

To answer that, let me give you a term and define it. The term is PITI: Principal, Interest, Taxes, and Insurance. PITI is, in other words, the out-of-pocket expense that it takes to keep you living in the home you buy. PITI also includes association maintenance or condo fees.

Mortgage Qualifying Ratios

Lenders use two qualifying ratios in determining how much mortgage you can afford. They will loan you 28% to 36% of your monthly gross income for PITI...

by Jonathan G. Cameron, CFP®

So you’re getting ready for your first home purchase.  Congratulations! This is the first in a two-part series that should be helpful to you. Your First Home Purchase Part II is all about the criteria lenders use when evaluating your application. 

Down Payment and Qualifying for a Mortgage

In buying your first place you’ve got two main considerations: Coming up with a down payment is #1.  #2 is being able to qualify for a mortgage loan. This post assumes you're on track to save your down payment, and that you're looking into credit and mortgage qualification issues.  Specifically, you’ll learn how to get a good credit score in order to qualify for a mortgage.

Good Credit is Accurate Credit

Your first mission is to make sure that your credit report is accurate. I say project, because it may very well be just that – a mission. There are three major credit bureaus: Experian, Transunion, and Equifax. Each...