Young Professionals & Good Financial Decision-Making

Isn’t it funny that we are expected to make the biggest decisions of our lives when we are young? The answer to when to start investing? It’s earlier than you think.

We get married, we pursue a career path, maybe have children. We have to make quite a few decisions that will affect us the rest of our lives and determine our future trajectory. The decisions we make now can lead to heartache and loss, or security and success down the road. Some of us are fortunate to have parents to steer us in a good direction, while others lean on friends, extended family, or (gasp!) blogs. When to start investing for the long-term is also part of this equation.

When to start investing? The answer could mean millions.
We know that the decisions we make now will have important consequences for the future – not only for us, but also our spouse, children, etc. It’s no wonder we delay establishing a long-term savings plan. If we start off on a bad foot we may choose a bad...

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Step Up in Basis

In a previous entry I discussed the difference in taxation of capital gains property and ordinary income property. That piece discussed what happens on your form 1040. But what happens when you die and bequeath these assets to your heirs?

An example
Previously I used the example of a stock that I bought at $100. Now say I leave it to my daughter at my death, and it is trading at $120 on the day I die. How is she taxed? Since stock is capital gains property, she gets a step up in basis to the date of death value. This means that she does not inherit my original basis of $100 – on the date of my death the stock is worth $120, so $120 becomes her new basis. That $20 gain is therefore never taxed! She could turn around and sell the stock the next day for $120 and have no taxable event. She could sell it after one month for $130/share, and have a $10 long term capital gain. Remember, her basis is $120. How is the gain long term when she old held the shares for a month? The gain is...

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How Much Mortgage Can I Afford?

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 talk about most lender’s criteria for lending to you.

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 expenses, and 36% to 41% of your gross income for PITI plus other...

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Ordinary Income vs. Capital Gains

In this post I’m tackling a tax topic: The difference between ordinary income taxation and capital gains taxation. What’s the difference and why is it important to know? One word: taxes.

The IRS taxes your income, as you know, but it also taxes profits. If you buy a stock for, say, $100/share, and then sell it for $120/share, you have a $20 gain which is taxable. The original $100 purchase price is what’s called your basis in the stock. Basis is increased by sales taxes paid on the item, any legal fees associated with its purchase – even inbound freight costs. When you sell at a profit, you want your basis to be as high as possible, to reduce your taxes on the gain.

A tax example
Let’s look at how that $20 gain is taxed. It all depends upon your holding period for the asset – how long you owned it. If you held the asset for more than one year, then it is taxed at a capital gains rate. That rate is 0% for those in the 10% and 15% marginal brackets,...

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Your First Home Purchase

So you’re getting ready for your first home purchase. This is the first in a two-part series. The second is entitled, How Much Mortgage Can I Afford? To qualify for a mortgage you need a good credit score.

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 number one. Number two is being able to qualify for a mortgage loan. In this post, I hope to help you get ready to obtain your first mortgage. 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 project is to make sure that your credit report is accurate. I say project, because it may very well be just that – a project. There are three major credit bureaus: Experian, Transunion, and Equifax. Each time you make a reportable event with one of your credit grantors – say Macy’s – that event shows up on your credit report. So...

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Roth Conversions

financial planning Sep 26, 2017

Who should consider a Roth conversion?
In a previous post we went into the Roth IRA – how it works, and how to make it work for you. In this blog post we want to delve into the topic of Roth conversions. Before lauching in, though, we’ll begin with a brief review of IRS rules on getting money into your Roth IRA. Your contribution limits are $5500 per year or $6500 if age 50 or older (2017). You must have earned income to contribute. This is W-2 income or income from a trade or business. In other words, investment earnings and social security income do not count. Additionally, the IRS begins to phase out a taxpayer from making a Roth contribution if his adjusted gross income, as a single taxpayer, exceeds $118,000, or $186,000 for married taxpayers filing jointly.

I’m over the income phaseout!
You still have options. You can convert your Traditional IRA into a Roth without limit. Conversion means that you transfer funds into your Roth. The dollars transferred are...

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Investing for Millennials

Investing for Millennials is an important topic for a generation set to inherit a massive amount of wealth over the next few decades. Millennials will likely inherit $30 trillion from boomers over the next 30 years[1]. While the stock market is volatile, it continues to rise and break new highs. The questions for Millennials are, “When is the right time to invest? Where do I start?”

Investing for Millennials – three keys to keep in mind
Market timing is a losing formula
When it comes to investing for Millennials we tell them, “You cannot time markets.” This is very important. Waiting for the right time to buy or sell is the realm of day traders. In other words, if you think you’ll get ahead by picking the right day to start investing, chances are there will always be a better day. Certain investments are attractive because of brand popularity or hype, but are often bad investment choices for the investor. It is a big temptation to “time”...

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Roth IRAs

financial planning iras Sep 19, 2017

What is a Roth IRA?
One of the most popular ways to save for retirement is in a Roth Individual Retirement Account, or a Roth IRA. Roth IRAs first came out in 1997 after being championed by former Senator William V. Roth of Delaware. Tax-wise, a Roth IRA is basically like a Traditional IRA but backwards. In a Traditional IRA, just like 401ks, you generally get an up-front tax deduction when making a contribution. The account grows over time, tax-deferred. You don’t pay any taxes as the account grows. When it’s time to retire, whatever you take out of a Traditional IRA is taxable at your ordinary income rate.

Let’s do some basic math: if your tax bracket at retirement is 25% and you distribute $1000 from your Traditional IRA you will get to keep $750. The IRS keeps $250. Remember, since contributions are made before tax, distributions from a Traditional IRA are fully taxable.

The Roth IRA basically works the other way around. In a Roth IRA, or Roth 401k, you get no...

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The Difference Between Disability Insurance Coverage & Long Term Care

Although there are many similarities these are two very different kinds of insurance. Disability insurance coverage protects wages lost due to an illness or accident. In contrast, long term care insurance is designed to help cover costs of health care services. Typically, health services are in your home, a nursing home, a rehabilitation center, or an assisted living facility.

Disability insurance coverage vs. long term care insurance
Disability insurance coverage provides replacement for lost wages when you are unable to work. Your ability to earn a living – including your professional education and experience – are what’s insured. Long term care insurance, in contrast, addresses expenses associated with palliative medical care services in your home, a nursing home, a rehabilitation center, or an assisted living facility.

Short vs. long term disability insurance coverage
Disability insurance coverage may address either short term or long term income replacement...

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This Page is Intentionally Left Blank

Uncategorized Sep 12, 2017

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

We’ve been pondering this.

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. We should close the flight plan on this. Really? Why not simply conclude? Or how about our deliverables? Deliverables? We sell deliverables? I though we sold products!

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

Just wanted to get this off my chest. It all leaves me scratching my head in wonder. I’m glad my high school English teacher isn’t around to see this.

For more pithy...

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