A flexible spending account (FSA) is an elective benefit offered by many employers. There are generally two types: the FSA for healthcare expenses, and the FSA for dependent care expenses. This is part two of a two-part series. Here I describe the dependent care flexible spending account. You’ll find my post on the healthcare FSA here.

Dependent care flexible spending account
The Dependent Care FSA is a great way to fund, on a pre-tax basis, childcare expense incurred so that the parent can go to work. You must claim the child as a dependent on your tax return. Also, the child must be under age 13. The maximum tax-free reimbursement under a dependent care FSA is $5000/year. If married, both spouses must work in order to benefit. There is an exception if the non-working spouse is a student or disabled. If one spouse earns less than $5000, the benefit is limited to the earnings of that spouse.

What are the eligible expenses?
There are many. Before and after-school care, but not...

Estate Planning – not just for the rich
You are out of school, maybe working your first job, and for the first time have your own place. You’re a real person now – making your own way in the world. It’s a great time of life! so why would I ever want to interrupt your fun to talk about estate planning?

Usually when we think of estate planning we have in mind the orderly transition of assets at death. Death is something that you have a 100% chance of experiencing – we just don’t know when. Tomorrow isn’t promised to us – and neither is this afternoon, for that matter. Consequently it is prudent to plan for this eventuality.

What does the Young Professional need?
A valid will
What do you need to do at this point in life? A basic will is the foundational document of estate planning. You need that once you own real property or begin to accumulate assets. Typically, at the earlier stages of life, most of what you have is going to pass by...

Flexible Spending Accounts (FSAs)
A flexible spending account (FSA) is offered as an elective benefit by many employers. There are generally two types: the FSA for healthcare expenses, and the FSA for dependent care expenses. This is part one of a two-part series. Here I describe the healthcare flexible spending account. You’ll find my post on the dependent care FSA here.

The Healthcare FSA
This account allows workers to contribute, through payroll deduction, to accounts that are designated for qualifying medical or dental expenses not covered by insurance. All amounts contributed are pretax and funds are not taxed when spent on qualifying health care costs – this is a big tax advantage. The FSA owner can use the funds for deductibles, co-payments, and co-insurance for the employee’s health insurance. The funds are also available for dental and vision expenses. Over-the-counter medications are not an allowable FSA expense.

Before the new tax year the employee directs...

The IRS tax code sets forth rules and regulations under which US taxpayers remit monies to the federal government. Our taxes, and borrowing, supply the US government with its operating funds. The tax code also encourages certain behaviors, and discourages others. For example, it encourages charitable giving through generous tax deductions. Clearly it discourages speculation by taxing short term gains at one’s marginal tax rate.

In this blog piece I want to describe some of the charitable giving strategies available to the affluent. I as an advisor would be remiss if I didn’t bring this conversation up to a client. Is there a church or synagogue you wish to favor? A university? A specific charity? The opera guild? There are many favorable ways to give, which can also produce a guaranteed income for the giver.

Charitable giving is itself a discipline within the larger discipline of estate planning. Through 2017 the estate exemption is $5.49 million for an individual, and...

Here is something we hear on occasion at CameronDowning: “I’m not sure an IRA is for me. I hear it may be too risky.” The problem with this statement is that an IRA, or Individual Retirement Account, is not an investment. So what is an IRA?

An IRA is technically a registration
It holds investments, but is not an investment itself. You can put all kinds of investments within an IRA. Consequently, stocks, bonds, mutual funds, CDs, and even gold bullion are investment options within an IRA. You can be 100% in cash in an IRA, which by definition has no risk. We’ve also commonly seen annuities put in IRAs which is typically not a good idea, and I discuss why elsewhere.

So what is an IRA?
Getting the terminology right is important. Picture a candy wrapper holding chocolate inside. An IRA is like the candy wrapper. Likewise, there are different kinds of candy wrappers just like there are various kinds of IRA registrations. Traditional, Roth, SEP, SIMPLE are the most...

In these days of market volatility and high emotions, I’d like to contribute a little financial wisdom to the discussion. To wit:

Buy low and sell high.
Amazing how many people do exactly the opposite. Say we’ve spent quite a bit of time ascertaining your risk tolerance. We go through the Riskalyze software exercise, and you score into an allocation that should, over the next 6 months, produce returns in the range of -8% to +16%. You agree that an 8% drop wouldn’t bother you. You could still sleep at night, knowing that markets are cyclical, and the long term trend is always up. We subsequently invest you appropriately. Yet, during a market correction, you call all worried about China and the price of oil and Puerto Rican bonds and the Brazilian recession, and instruct me to sell you out.

What happened here? Either you replied untruthfully to the questions the software program uses, or you let emotions cloud your judgment. Studies show that as much as 90% of...

An annuity in an IRA is typically a dead giveaway that a client worked with a salesperson, not a financial planner. Annuities, like any other tool, are not inherently bad. They work best when they do the job they were designed to do – and that job is income distribution. Annuities can be a useful accumulation vehicle for those with a more conservative investing outlook. They make sense for asset protection. An annuity is also a safe way to create a perpetual stream of income without market risk. Also, the use of a single premium immediate annuity, or SPIA, has particular application in estate planning. But an annuity in an IRA? Why???

Annuity salesmen & first responders
While annuities are appropriate in certain circumstances, most clients do not have the special planning needs that make an annuity in their best interests. Law enforcement, firefighters, and other first responders, are marketed heavily by annuity salesmen. Why? The often have DROP payments. Annuities pay a...

Can I time the markets?
When the stock market becomes volatile, people often wonder, Is this a good time to go in? What they are doing is trying to time the markets – they are making educated (or emotional) guesses as to market peaks and valleys, and investing accordingly. I’d put it to you that market timing doesn’t work, at least not consistently. If you look at a line graph in the first quadrant, there is nothing to say that the next data point will be above the last point, at the last point, or below the last point. Trends are real and visible, but they change.

We certainly understand the impetus behind market timing. You as an investor don’t want to put your money in on what turned out to be a high day for the year, and conversely you don’t want to have sold at what was the low day for the year.

The idea behind dollar cost averaging
The idea behind dollar cost averaging, or DCA, is a simple one: Instead of trying to time the market you invest a...

You’ve saved up your down payment, interest rates are good, and the time is right. So how much house can you afford to buy? There is a qualifying ratio lenders look at when approving you for a mortgage.

Debt to income qualifying ratio
The place to begin is your monthly gross income. That is, your income before any deductions for taxes, retirement plan contributions, or other payroll deductions. Bottom line: for those with excellent credit, the debt to income qualifying ratio lenders look for generally fall between 40-50%. In other words, lenders divide up all your monthly debt payments (including a proposed housing payment) by your gross monthly income. The result is a percentage. Debt payments include things like housing, credit card, student loans, and car payments.

Can you handle the debt payments?
Lenders want to see how you manage existing debt. They want to know if you are a responsible borrower before approving you for a mortgage. If your monthly debt payment is below the...

The stretch IRA is one in which the beneficiary chooses not to distribute the inherited account all at once, but to take required minimum distributions according to his (own) life expectancy. Please refer to my previous post about RMDs.

If you are a non-spouse IRA beneficiary, you have some choices. You can simply sell the assets and distribute them to yourself. This must be done by the end of the fifth year after the IRA owner died. The amount distributed is added to your taxable income for that year, and can run you right up the tax brackets. The taxation sort of makes sense, though, in that the traditional IRA owner was never taxed on the contributions to the account, nor on the growth within the account. So at distribution the IRS gets its own.

Even better, though, is the option of stretching the IRA. This simply means taking required minimum distributions over the beneficiary’s life (beginning the year after inheriting the account). Since the younger beneficiary has a...