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4 Tips to Save For and Fund Your Child’s College Tuition

By Financial Planning

College is an investment in your child and your family, but it can come at a hefty price. Here are some tips to save!

 

College and other forms of higher education have always been a vital part of planning a career. The foundation of any resume, a recent study interviewing 500 professional recruiters showed that all 500 look for candidates with a college degree [1]. Some common rebuttals to the argument for college might start with names like Zuckerberg, Jobs, Gates and Oprah Winfrey, all who dropped out school. Those four have incredible stories, but they’re the exception, not the rule.

The average college graduate with a bachelor’s degree has a lifetime earnings of $2.8 million while a person who achieved a high school diploma earns an average of $1.6 million over their career[2]. At the same time, that average increase in lifetime earnings can come at a steep price, and that price is only rising. Tuition has climbed 211% for in-state universities over the last 20 years [3], escalating panic in students and their families who are forced to shoulder the burden. Without a plan to tackle them, loans can hang over a student’s head for decades. To alleviate some of that stress, here are a few tips for saving for and funding your child’s college education:

  1. Assess early options

Many high schools around the United States offer Advanced Placement (AP) and dual-enrollment classes. By taking these higher-level courses while still in high school, students can be awarded college credits early, potentially at an even lower cost. AP classes are generally more difficult classes targeting more specific areas of study within a subject. They’re widely accepted and acknowledged throughout U.S. colleges, and they are free to students who elect to take the challenge. End-of-year tests for AP classes do cost $96 per exam [4] in the U.S., but colleges may award credits based on scores that would be evident of the student mastering the material.

Dual-enrollment classes, on the other hand, function as a partnership between high schools and colleges. A dual-enrollment class holds high school students to the college-level standard and curriculum. The students then pay per credit at the partnered college’s rate and receive those credits upon class completion as if they were taking those courses on the college campus. Both types of classes can save students and parents valuable time and money in their pursuit of higher education.

  1. Familiarize yourself with the aid process

There are many types of student aid, and amounts can vary based on a plethora of factors. The most obvious form of assistance provided to students is scholarship money. It can be awarded based on test scores, academic results, athletics or extracurricular activities, and amounts can fluctuate based on a student’s choice of school. There are also opportunities for privately-funded scholarships that can be awarded by foundations, religious groups or other organizations on a need or merit-based basis. Students can typically find these opportunities online and apply if they meet predetermined criteria.

Students should also fill out the Free Application for Federal Student Aid, otherwise known as the FAFSA [5]. The FAFSA uses a student’s information to determine how much aid they might qualify for, including money from grants or state-funded assistance. It can also determine how much a student could qualify for in loans if those become necessary.

  1. Familiarize yourself with current legislation

Legislation is always changing for parents looking to get a jump-start in funding their child’s education. For example, the FAFSA Simplification Act of 2020 opened new doors for students trying to qualify for need-based assistance. Prior to the FAFSA Simplification Act of 2020, the FAFSA calculated the expected family contribution, or the EFC. The EFC estimated the amount family members would be able to contribute to a student’s education based on income, assets and other benefits. EFC has now been replaced by student aid index, or SAI. Where EFC bottomed out at $0, SAI can go as low as -$1,500, meaning students can qualify for more need-based aid [6]. SAI also simplifies the form itself, cutting down the number of questions and the factors that figure into assistance a student might receive from family.

Where this could truly be a boon to students who need more aid is through family members whose contributions were accounted for in the EFC but are not accounted for in the SAI. The popular 529 plan, which provides tax-advantaged savings for designated beneficiaries, is often used by grandparents to help their grandchildren pay for college. Funds from a 529 plan no longer factor into the expected contributions from family members meaning that they will not have negative implications for the FAFSA’s estimation of how much aid a student requires [7].

  1. Research schools prior to selection

Cost can differ by school selection, and though some students have their hearts set on a specific university, financials could play a large role in deciding on the best fit for your child. For example, students who do not expect to receive much aid from family or scholarship opportunities can opt for community college. Community colleges generally offer favorable per-credit prices for in-state students. The average cost per credit hour at a two-year community college is $141 while a public, four-year university costs $390 per credit hour on average [8].

After two years at a community college, students can usually transfer their credits to a university to finish a four-year degree. Wide-ranging opinions also exist about college selection [9]. Some researchers and surveys suggest that attending a prestigious college could be nothing more than a status symbol. Employers can look for many qualifications such as experience, extracurriculars, ability or the simple fact that a candidate attended any college. At the end of the day, the right choice of school will be different for each student.

If you have any questions about saving or planning to help your family, please give us a call! You can reach Drew Capital Group Private Wealth Management in Tampa, Florida by calling (813) 820-0069.

 

This material is provided as a courtesy and for educational purposes only. Please consult your investment professional, legal or tax advisor for specific information pertaining to your situation.

 

Sources:

  1. https://www.ellucian.com/assets/en/white-paper/credential-clout-survey.pdf
  2. https://www.forbes.com/sites/michaeltnietzel/2021/10/11/new-study-college-degree-carries-big-earnings-premium-but-other-factors-matter-too/?sh=6fd5ad4035cd
  3. https://www.usnews.com/education/best-colleges/paying-for-college/articles/2017-09-20/see-20-years-of-tuition-growth-at-national-universities
  4. https://apcentral.collegeboard.org/exam-administration-ordering-scores/ordering-fees/ordering-exam-materials/help/cost-of-exam
  5. https://studentaid.gov/
  6. https://unicreds.com/blog/student-aid-index
  7. https://www.usnews.com/education/best-colleges/paying-for-college/articles/tips-for-grandparents-using-a-529-plan-to-save-for-college
  8. https://educationdata.org/cost-of-a-college-class-or-credit-hour
  9. https://www.nbcnews.com/business/business-news/does-it-even-matter-where-you-go-college-here-s-n982851

7 Tips for Saving Money at the Pump

By Financial Planning

Gas prices are on the rise. Here are some ways to save a little bit of money.

The surge in gas prices swooped in just in time to dampen the mood in 2022. With the Russian invasion of Ukraine continuing to impact oil prices all around the world, the best solution might be to embrace the climb and start brainstorming some small life changes we can make to compensate.

According to AAA, the United States hit its highest average price per gallon Mar. 11 at $4.33 [1]. By adjusting, it’s possible to save hundreds, or even thousands, each month [2], and that money could go right back into your pocket. Fewer trips to the pump mean more money in your wallet, which means more money that you can spend, save or invest in your future. Here are seven tips to save money on gas as the prices rise:

  1. Use public transportation

This option might depend upon your geographic location and living situation, but you may be able to save on gas by taking public transportation. It may not be an option in widely-sprawling metro areas or cities without public transportation systems, but in major cities like New York, San Francisco, Boston, Philadelphia or Seattle, one household could save $10,000 or more each year by opting to use public transit [2]. That total could depend upon other factors, like the type of car you drive, insurance and parking, but gas and rising prices certainly figure into your possible savings.

  1. Start carpooling

For those who have longer work commutes or don’t live in cities with public transit systems, carpooling can be a great option. By finding a work friend who lives nearby and makes a similar commute, you might be able to cut your gas expenditure in half. Those savings can multiply if you decide to invite more people into your car pool, and it might even be a great option for those looking for more social outlets. Carpooling can also help the environment by reducing emissions, and it saves you time by cutting traffic and giving you access to the glorious high occupancy vehicle lane.

  1. Download price-viewing apps

Gas prices fluctuate based on location and company. Don’t you hate it when you get gas, then drive one mile down the road and see prices 30 cents cheaper than the price you just paid? Luckily, there is an easy fix for that problem. Phone apps, like GasBuddy [3], list prices for nearly every filling station in your immediate area. Users update the information to ensure that the prices you see are accurate, and you can pinpoint the cheapest gas with just a few taps. Simply checking nearby gas prices or rates in a specific city or zip code is free, but GasBuddy also offers premium, fee-based options that can help users rack up even more savings.

  1. Become a member of wholesale stores

Wholesale stores, like Costco, may feature lower gas prices depending on your area. Granted, a membership to Costco might cost you $60 annually [4], but we can do some quick math to see just how that membership fee has the potential to pay for itself. Prior to the pandemic, the average American filled their gas tank roughly once per week [5]. According to GasBuddy searches, in large metro areas like Los Angeles, Costco’s average price per gallon might be somewhere between 25 cents and 50 cents per gallon less than the average price in the area [6]. If you fill up your 12-gallon tank once per week, the lower end of the scale results in a savings of $3 per full tank. That may not sound like much, but for one person, the $60 annual membership fee is covered in 20 weeks, or less than half a year. Furthermore, Costco’s most basic package, the Gold Star membership, includes a second membership at no additional cost for someone over the age of 18 living in your household. Let’s say, for example, your spouse also fills their 12-gallon tank once per week. The membership would be paid for in just 10 weeks, and you could still get cheaper gas for the rest of the year.

  1. Work from home

This isn’t an option for everyone, but it’s no secret that the best way to save gas is by simply not using it. According to the Pew Research Center, 59% of workers in the United States who are able to work from home are taking advantage of that opportunity [7]. The reevaluation of work circumstances truly kicked into gear during the pandemic, but even as the spread of the virus wanes, it can be a great option for those still looking to cut down costs at the gas station.

  1. Pay cash

Not all gas stations offer savings for paying with cash, but some do. In our transition to a cashless world, you might not carry cash as often as you used to, but a quick stop at your local ATM on your way to fill up might prove to be beneficial. Apps like GasBuddy may be able to show whether or not a gas station provides a discounted rate for customers who pay with cash [8]. Another easy way to tell if a station takes cash is if a sign clearly states that the rate per gallon is for cash payments. Some stations even have signs that flash between two prices, showing the price per gallon for payments with card versus the price per gallon for payments with cash.

  1. Find alternatives to long-distance hobbies

We would never advise that you give up your hobbies, but if you’re concerned about surging gas prices, staying home can be a good option. Weekend vacations or one-day getaways can easily be turned into staycations, and in 2022, there are so many great options for at-home activities. You can rent a recent movie, listen to music, play board games, grill out, invite friends over for a gathering, work out or play with your pets. The pandemic also opened the door for events like virtual happy hours and video hangouts, so if you just can’t reach your friends and family because of distance, you can still see them and interact with them extremely easily, all without spending a nickel on fuel.

If you have any questions about this article or how to protect your retirement plan during times of high inflation, please give us a call! You can reach Drew Capital Group Private Wealth Management in Tampa, Florida by calling (813) 820-0069.

 

These are the views of the author, not the named Representative or Advisory Services Network, LLC, and should not be construed as investment advice. Neither the named Representative nor Advisory Services Network, LLC gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your Financial Advisor for further information.

This site may contain links to articles or other information that may be contained on a third-party website. Advisory Services Network, LLC is not responsible for and does not control, adopt, or endorse any content contained on any third party website.

 

Sources

  1. https://gasprices.aaa.com/
  2. https://www.moneycrashers.com/benefits-public-transportation-travel-for-less/
  3. https://www.gasbuddy.com/home
  4. https://www.costco.com/join-costco.html
  5. https://www.reviews.com/insurance/car/drivers-fueling-behavior-after-covid/#:~:text=Over%2082%25%20of%20US%20drivers,decrease%20in%20consumer%20gas%20purchases
  6. https://www.gasbuddy.com/home?search=los%20angeles&fuel=1&brandId=38&maxAge=0&method=all
  7. https://www.pewresearch.org/social-trends/2022/02/16/covid-19-pandemic-continues-to-reshape-work-in-america/
  8. https://www.tmj4.com/news/local-news/if-discount-is-offered-using-cash-and-not-plastic-can-help-you-save-at-the-pump

6 Facts About Taxes

By Financial Planning, Tax Planning

Individual income tax returns for 2021 will be due April 18th, 2022. In preparation as we head into the tax season, here are some facts to consider. 

  1. Where your tax dollars go.

In 2021, the federal government spent $6.82 trillion, which equals 30% of the nation’s gross domestic product. Three significant areas of spending make up the majority of the budget. Medicare accounted for $696.5 billion, or 10%. Defense spending made up $754.8 billion, or 11% of the budget, was paid for defense and security-related international activities. Seventeen percent of the budget, or $1.1 trillion, was paid for Social Security, which provided monthly retirement benefits averaging $1,497 to 46 million retired workers.

  1. How long you should keep tax documents.

The IRS provides the following recommended timelines for retaining financial documents:

  1. You should keep your tax records for three years if #4 and #5 below do not apply to you.
  2. You should keep records for three years from the original filing date of your return or two years from the date you paid your taxes. Select whichever is the later date. This is if you claimed a credit or refund after you filed your return.
  3. You should keep your records for seven years if you claimed a loss from worthless securities or a bad debt deduction.
  4. You should keep your records for six years if you failed to report income that you should have, and the income was more than 25% of the gross income listed on your return.
  5. Keep records indefinitely if you do not file a return.
  6. You should keep employment tax records for at least four years after the due date on the taxes or after you paid the taxes. Select whichever is later.
  1. Tax brackets for 2021 individual income tax returns.

NOTE: These tax rates are scheduled to expire in 2025 unless Congress acts to make them permanent.

  1. Tax brackets for 2022.

When it comes to taxes, it’s always a good idea to plan ahead. In November 2021, The Internal Revenue Service announced that it is boosting federal tax brackets for 2022 due to faster inflation. Below is a breakdown of the new thresholds for the seven tax brackets in 2022:

10%: Single individuals earning up to $10,275 and married couples filing jointly earning up to $20,550.

12%: Single filers earning more than $10,275 and married couples filing jointly earning over $20,550.

22%: Single filers earning more than $41,775 and married couples filing jointly earning over $83,550.

24%: Single filers earning more than $89,075 and married couples filing jointly earning over $178,150.

32%: Single filers earning more than $170,050 and married couples filing jointly earning over $340,100.

35%: Single filers earning more than $215,950 and married couples filing jointly earning over $431,900.

37%: Single filers earning more than $539,900 and married couples filing jointly earning over $647,850.

  1. Standard deductions.

Here is an overview of the standard deductions since 2019, including the standard deduction for the 2021 tax season:

For 2022, the IRS is increasing standard deductions due to faster inflation:

The standard deduction for married couples filing jointly will rise 3.2 percent to $25,900 next year for the 2022 tax year, an increase of $800 from the prior year. The standard deduction for single taxpayers and married individuals filing separately rises to $12,950 for tax year 2022, up $400 from tax year 2021. For heads of households, the standard deduction will be $19,400, up $600.

  1. You can still contribute for the 2021 tax year.

If you have not already contributed fully to your individual retirement account for 2021, April 15 is your last chance to fund a traditional IRA or a Roth IRA. Please call us if you have any questions about setting up or contributing to a traditional or Roth IRA.

Sources: IRS.gov, SSA.gov

This information is for general purposes only and is not to be relied upon or considered as financial or tax advice. It is recommended that you work with your tax professional to complete your tax returns based on your unique situation.

Call us if you’d like to speak with us about your financial plan. You can reach Drew Financial Private Capital in Florida by calling (813) 820-0069.


References to J.W. Cole Advisors, Inc. (JWCA) are from prior registrations with that company. J.W. JWCA and Advisory Services Network, LLC are not affiliated entities.

7 Budgeting Tips For July

By Financial Literacy, Financial Planning

Budgeting can help you achieve your goals faster.

Once you realize that budgeting can help you achieve the goals you’ve set out for yourself, you may find the process inspiring.

  1. Think of your budget as a spending plan

Think of your budget as your “how-to” plan for spending your money rather than what you “can’t” spend. The upside is that by budgeting for short- and long-term expenditures, you can spend money without feeling guilty about it, because you’ve actually planned to spend it!

With a budget, you will simply be allocating all your expenditures with a means to an end, whether it’s getting out of debt, keeping your food bill down, having some fun in life, or saving for retirement. You may even discover that you have more money than you thought. Once you become intentional about what you’re spending, you may realize that your gym membership or all those monthly subscriptions you’re not using won’t be missed and you’ll have more cash free for other purposes, like the occasional Starbucks run or other little treat that makes you happy.

  1. Try using a zero-sum approach

A zero-sum budget means that every penny you have coming in each month gets allocated to a category. The goal is that your monthly income minus your allocations equals zero, so that you’ve put every dollar you have to use.

Start your zero-sum budget by figuring out your monthly net take-home pay or income amount, then allocate all of it to either savings, investments, bills, expenses or debt payoff. This forces you to be accountable for every penny, which puts you in control.

  1. Start with the most important categories first

Start with your true necessities, like mortgage, utilities, food and transportation. Make sure savings is a top priority. Then you can fill in the other categories that are discretionary.

  1. Strive to save 20-30% of your net for short- and long-term goals, and limit housing costs to 30%

So how does this break out? If your net income is $4,000 per month, you should strive to save $800 – $1,200 per month towards short- and long-term goals* and limit your mortgage or rent to $1,200 per month or less.

*Your short-term goals might include a vacation, wedding or down payment for a home. Long-term goals might be accumulating an emergency fund that equals six months’ expenses, getting out of debt, or saving for college or retirement.

  1. Label savings

Rather than have a lump savings account that includes everything you are saving for, try to use separate accounts or find a way to label them using a software program. That way you can see at a glance how close you are getting to each individual goal, like your vacation fund, emergency fund, etc.

Labeled savings accounts can help you keep track of progress toward your goals separately and feel a sense of accomplishment as you achieve each one.

  1. Remember each month’s varying expenses

Your spouse’s birthday, your birthday, holidays, back-to-school, annual car or home maintenance, Christmas each December—don’t forget to include varying annual expenses in each month’s budget. Not having money allocated for special occasions or annual expenses can take the joy out of life, while planning for them can do the opposite.

  1. Create a buffer, and use cash for problem areas

Create a buffer of cash that’s available; think of it as a little temporary augment to your emergency fund until you’ve been budgeting for a year or more. That way if something you forgot comes up, you’ll have the money for it—and you can put it in the regular budget for next time.

If you run into problem areas—for example, maybe you always grab extra unplanned items at the grocery store—consider using cash for problem categories rather than a credit card. Envelopes with cash can hold you more accountable because when the cash runs out, you have to stop spending.

 

If you’d like to discuss this or any other financial matter, please call us. We’re here to help. You can reach Drew Financial Private Capital in Florida by calling (813) 820-0069.


References to J.W. Cole Advisors, Inc. (JWCA) are from prior registrations with that company. J.W. JWCA and Advisory Services Network, LLC are not affiliated entities.

Podcast 01-04-2021

By Financial Planning

In this unique podcast, Chris is interviewed on the Foreign & International Medical Graduate Show. The podcast was created to help inspire physicians who are in the process of immigration to the United States. The host admits doctors spend an incredible amount of time studying science. Like many other professions, they spend little or no time learning about money and finances. In this conversation Chris discusses how physicians can be better prepared financially in running their practices by developing sound financial and retirement plans.

Podcast January 04 2021
Podcast January 04 2021

References to J.W. Cole Advisors, Inc. (JWCA) are from prior registrations with that company. J.W. JWCA and Advisory Services Network, LLC are not affiliated entities.

Your Annual Financial To-Do List

By Financial Planning

Things you can do for your future as the year unfolds.

What financial, business, or life priorities do you need to address for the coming year? Now is an excellent time to think about the investing, saving, or budgeting methods you could employ toward specific objectives, from building your retirement fund to managing your taxes. You have plenty of choices. Here are a few ideas to consider:

 

Can you contribute more to your retirement plans this year? In 2021, the contribution limit for a Roth or traditional individual retirement account (IRA) is expected to remain at $6,000 ($7,000 for those making “catch-up” contributions). Your modified adjusted gross income (MAGI) may affect how much you can put into a Roth IRA. With a traditional IRA, you can contribute if you (or your spouse if filing jointly) have taxable compensation, but income limits are one factor in determining whether the contribution is tax-deductible.

Remember, withdrawals from traditional IRAs are taxed as ordinary income, and if taken before age 59½, may be subject to a 10% federal income tax penalty starting again in 2021 because the CARES Act ends December 31, 2020. Roth IRA distributions must meet a five-year holding requirement and occur after age 59½ to qualify for tax-exempt and penalty-free withdrawal. Tax-free and penalty-free withdrawals from Roth IRAs can also be taken under certain other circumstances, such as a result of the owner’s death.

Keep in mind, this article is for informational purposes only, and not a replacement for real-life advice. Also, tax rules are constantly changing, and there is no guarantee that the tax landscape will remain the same in years ahead.

 

Make a charitable gift. You can claim the deduction on your tax return, provided you follow the Internal Review Service (I.R.S.) guidelines and itemize your deductions with Schedule A. The paper trail is important here. If you give cash, you should consider documenting it. Some contributions can be demonstrated by a bank record, payroll deduction record, credit card statement, or written communication from the charity with the date and amount. Incidentally, the I.R.S. does not equate a pledge with a donation. If you pledge $2,000 to a charity this year but only end up gifting $500, you can only deduct $500.  You must write the check or make the gift using a credit card by the end of December.

These are hypothetical examples and are not a replacement for real-life advice. Make certain to consult your tax, legal, or accounting professional before modifying your record-keeping approach or your strategy for making charitable gifts.

 

See if you can take a home office deduction for your small business. If you are a small-business owner, you may want to investigate this. You may be able to write off expenses linked to the portion of your home used to conduct your business. Using your home office as a business expense involves a complex set of tax rules and regulations. Before moving forward, consider working with a professional who is familiar with home-based businesses.

  

Open an HSA. A Health Savings Account (HSA) works a bit like your workplace retirement account. There are also some HSA rules and limitations to consider. You are limited to a $3,600 contribution for 2021 if you are single; $7,200 if you have a spouse or family. Those limits jump by a $1,000 “catch-up” limit for each person in the household over age 55.

If you spend your HSA funds for non-medical expenses before age 65, you may be required to pay ordinary income tax as well as a 20% penalty. After age 65, you may be required to pay ordinary income taxes on HSA funds used for nonmedical expenses. HSA contributions are exempt from federal income tax; however, they are not exempt from state taxes in certain states.

 

Review your withholding status. Should it be adjusted due to any of the following factors?

* You tend to pay the federal or state government at the end of each year.

* You tend to get a federal tax refund each year.

* You recently married or divorced.

* You have a new job, and your earnings have been adjusted.

These are general guidelines and are not a replacement for real-life advice. Make certain to consult your tax, human resources, or accounting professional before modifying your withholding status.

 

Did you get married in 2020? If so, it may be an excellent time to consider reviewing the beneficiaries of your retirement accounts and other assets. The same goes for your insurance coverage. If you are preparing to have a new last name in 2021, you may want to get a new Social Security card. Additionally, retirement accounts may need to be revised or adjusted?

 

Consider the tax impact of any upcoming transactions. Are you planning to sell any real estate this year? Are you starting a business? Might any commissions or bonuses come your way in 2021? Do you anticipate selling an investment that is held outside of a tax-deferred account?

 

If you are retired and in your 70s, remember your RMDs. In other words, Required Minimum Distributions (RMDs) from retirement accounts. Under the SECURE ACT, in most circumstances, once you reach age 72, you must begin taking RMDs from most types of these accounts.

 

Vow to focus on your overall health and practice sound financial habits in 2021. And don’t be afraid to ask for help from professionals who understand your individual situation. Give us a call if you would like to discuss. You can reach Drew Financial Private Capital in Florida by calling (813) 820-0069.

 

Sources:

https://thefinancebuff.com/401k-403b-ira-contribution-limits.html

https://money.usnews.com/money/retirement/iras/articles/what-is-the-secure-act

https://www.irs.gov/publications/p590b

https://www.azcentral.com/story/money/business/consumers/2020/11/22/these-tax-laws-charitable-donations-were-changed-help-pandemic/6295115002/

https://www.investopedia.com/articles/tax/09/self-employed-tax-deductions.asp

https://www.investopedia.com/articles/personal-finance/082914/rules-having-health-savings-account-hsa.asp#:~:text=You%20can%20only%20open%20and,as%20a%20catch%2Dup%20contribution.

https://www.thinkadvisor.com/2020/11/29/10-tax-tips-to-take-by-year-end/


References to J.W. Cole Advisors, Inc. (JWCA) are from prior registrations with that company. J.W. JWCA and Advisory Services Network, LLC are not affiliated entities.

10 Reasons You Need a Financial Plan

By Financial Planning

October is Financial Planning Month which serves as a useful, annual checkpoint to make sure you are on track to meet your financial goals. A written, up-to-date financial plan encompasses not only investments, but risk management solutions, tax reduction strategies and estate planning.

10 Reasons You Need a Financial Plan

  1. To have one comprehensive document to address your finances.

Financial planning provides one summary location for everything related to your family’s financial life. From your budget, to your savings, to your investments, to your retirement, a financial plan helps you consider your finances in a holistic manner, and gives you one central place to see everything at a glance.

  1. To ensure your investments are in line with your current short- and long-term goals.

A financial plan includes short-term goals like buying a house and long-term goals like saving for retirement, as well as everything in between. As your goals change through time, your financial plan is a living document that should get updated with your advisor on at least an annual basis.

  1. To ensure you’re not spending too much money each month—to have adequate cash flow.

A realistic budget is very important to keeping you on track with your goals. This doesn’t mean you have to deprive yourself of little luxuries—it just means that those are already built into the plan so you don’t overspend.

  1. To ensure you’re saving enough money, in the right places, including adequate reserves.

As many of us have learned during the pandemic, having adequate emergency funds is important. That amount varies from person to person, and your advisor can help you define the amount you have saved for emergencies, and help you find the right strategies to use so that your savings are liquid and accessible when you need funds.

  1. To ensure your retirement is on track.

Making sure your retirement funds are invested for best performance while matching your risk tolerance and time horizon to retirement is one part of making sure your retirement is on track. Another part is making decisions about your desired retirement lifestyle and the corresponding monthly budget you will need later. These retirement lifestyle decisions can change throughout your working career, but should get more solid as you get from five to 10 years away from retiring.

  1. To put and keep adequate protection in place against risks—like health, disability, accidental death and liability.

Providing for your family’s financial security is an important part of the financial planning process, as is assessing other risks you may face such as liability from lawsuits. Having the proper insurance coverage in place can protect your whole family. And today’s policy designs mean you may be able to cover multiple risks with fewer policies—and may even be able to enjoy “living benefits” while providing death benefit protection for your family members.

  1. To address and have a plan in place for your estate.

Everyone needs an estate plan. A will allows you to spell out your final wishes, such as listing recipients of each of your possessions and designating minor children’s guardians. A trust can bypass probate court, saving money and keeping things private while easily transferring wealth. Health care directives and powers of attorney are critical should you become incapacitated. When creating your estate plan, your ideal team should include an estate attorney, your financial advisor and your tax professional.

  1. To help you manage changes.

A financial plan includes all its various parts and pieces so that you can quickly see what needs updating when life changes happen. Remember, the beneficiaries you list on your individual insurance policies and your retirement accounts (like 401(k)s) take precedence over what is in your estate planning documents. Too many people have had their ex-spouses receive money because they forgot to update all documents properly.

  1. To help you mitigate taxes.

It’s truly not how much you have; it’s how much you get to keep. Tax reduction strategies can help you annually, but your advisor can also help you look further ahead to reduce taxes later, such as during retirement. Remember, all the money you have saved in accounts like traditional 401(k)s are pre-tax dollars—you will have to pay ordinary income tax on that money when you withdraw it, which you have to do starting at age 72. Making a plan for taxation can help.

  1. To help enhance your peace of mind.

Reducing stress and sleeping more soundly may be the best reason of all to have a financial plan in place.

 

If you would like to create, update or review your financial plan, please call us. You can reach Drew Financial Private Capital in Florida by calling (813) 820-0069.


References to J.W. Cole Advisors, Inc. (JWCA) are from prior registrations with that company. J.W. JWCA and Advisory Services Network, LLC are not affiliated entities.

How a Furlough (or Layoff) Affects Your Finances…and Retirement

By 401k Plans, Financial Planning

Here are six things you need to know if you or a family member has been furloughed—or laid off—from their job

 

A furlough is an unpaid leave of absence. You don’t report to work, you don’t get paid, and you may lose some of your benefits. Getting fired or laid off is different because it is permanent; whereas, being furloughed means your employer wants you back as soon as things get back to normal, typically at the same position and income level as before the furlough. Here are six things you should know:

 

  1. Filing for unemployment

Whether furloughed or laid off, you should file for unemployment as soon as possible because the CARES Act adds to the amount your state provides weekly, but only through July 31. For instance, the average benefit among the 50 states is $215 per week—the CARES Act adds an additional $600 per week through the end of July. Self-employed, independent contractors and gig economy workers, who typically are not allowed to file for unemployment, can also apply. Learn more here.

  1. Healthcare insurance

If you are furloughed, you may still be able to keep your healthcare insurance. Be sure to check with your employer about how to arrange to pay your contribution amount, if any. If you are laid off, you can continue benefits through COBRA, or you may find a cheaper option through the exchange http://healthcare.gov website—if your state has chosen to open up enrollment due to the pandemic.

  1. Bills and debts

There is a provision for mortgage forbearance if you have a single-family residence mortgage loan backed by the federal government, and renters can avoid eviction for more than 120 days if their landlord has a government loan on the property rented. Learn more here. Student loans held by the federal government will not require payment and will not accrue interest through September 30.

In any case, it is recommended that you call creditors to discuss your situation. Ask them what they have to offer people who are experiencing a temporary reduction in income, and take notes and ask about any fees, additional interest, and whether they report any postponed payments to credit bureaus.

  1. 401(k) or similar retirement plan – contributions

If you are furloughed, your 401(k) accounts should remain in place, but your contributions and matching contributions won’t happen during the furlough unless your employer chooses to make a discretionary contribution. If you are not yet fully vested, there is a scenario that could happen if you are furloughed for an extended amount of time or ultimately laid off. If an employer terminates 20% or more of its workforce, a “partial plan termination” could be triggered, in which case the IRS could decide that all affected employees would become 100% vested.

If you are let go, you can leave your money in the company’s 401(k) plan if you have more than $5,000 in it, although you can’t add additional money to the account. If you have $5,000 or less, your employer has the option of removing you and distributing the funds, so be sure to ask what they intend to do. See some of your other options below.

  1. 401(k) – loans

If you are furloughed, or laid off but leaving your 401(k) with the company, you may be able to take a loan or withdrawal from your 401(k) due to the coronavirus outbreak, depending upon your company plan rules—be sure to check with your plan administrator.

If so, the CARES Act allows up to $100,000 to be taken without penalty, although you will have to either repay the money or pay taxes on the amount withdrawn over the next three years. NOTE: You can do this even if you are under the age of 59-1/2, there will be no 10% penalty, and there will be no mandated 20% withheld by the 401(k) administrator for taxes. In order to meet the eligibility provisions of the CARES Act, you, your spouse or dependent/s must have contracted COVID-19, or must have experienced adverse financial consequences as a result of quarantine, furlough, lack of childcare or closed or reduced hours of business.

If you already have an outstanding 401(k) loan, your repayments will stop while you are furloughed, since those are typically held out from your paycheck. Ask your employer about how you can make repayments or get the loan repayments suspended temporarily.

Taking 401(k) loans or cashing out should be a last option for most people since it can jeopardize your retirement nest egg and your future. After the 2008 financial crisis, most people who stayed in the market experienced financial recovery from their losses.

  1. 401(k) – rollovers

If you are laid off, you do have the option of rolling over your 401(k) money into your own self-directed IRA account. This offers many options, since an IRA can be a mutual fund, annuity, ETF, CD or almost any other type of financial instrument.

You need to choose between a tax-deferred traditional IRA, or pay taxes on the money you roll over and start a Roth IRA. With a traditional IRA, you will have to begin withdrawing a certain amount out every year starting at age 72 and pay ordinary income taxes on the money withdrawn. (These are called Required Minimum Distributions (RMDs)—which are not due in 2020 per the CARES Act.)

With a Roth IRA, you pay taxes up front. You don’t have to withdraw money during retirement, but if you do, it is usually tax- and penalty-free after you’ve owned the account for five years. Your kids can inherit the money tax-free as well.

It’s usually best to work with a financial advisor who can outline some of the tax ramifications, rules and timing requirements so you don’t miss any rollover deadlines or get hit with any penalties or taxes you weren’t expecting. They can fill you in on other options, such as, if you are age 59-1/2 and still working, you may be able to do an “in-service rollover” with part of your 401(k), moving that portion into your own IRA, potentially helping you avoid market risk as you get closer to retirement.

 

If you have any questions, please call us. You can reach Drew Financial Private Capital in Florida by calling (813) 820-0069.

 

This article is provided for informational purposes only, and is not intended to provide any financial, legal or tax advice. Before making any financial decisions, you are strongly advised to consult with proper legal or tax professionals to determine any tax or other potential consequences you might encounter related to your specific situation.

 

Sources:

https://www.fool.com/investing/2020/04/23/how-a-furlough-affects-your-401k.aspx

https://www.immediateannuities.com/roll-over-ira-or-401k/

https://www.washingtonpost.com/business/2020/04/03/unemployed-coronavirus-faq/?arc404=true

https://www.cbsnews.com/news/furlough-versus-layoff-unemployment-aid-coronavirus/

https://money.usnews.com/money/retirement/401ks/articles/what-to-do-with-your-401-k-if-you-get-laid-off

https://www.businessinsider.com/what-you-need-from-your-job-get-laid-off-furloughed-2020-4#if-you-have-no-other-choice-but-to-withdraw-from-your-retirement-funds-know-the-new-cares-act-updates-8

https://www.thestreet.com/how-to/how-to-roll-your-401k-into-an-ira-while-you-re-still-working-14379206

https://www.investopedia.com/articles/personal-finance/092214/guide-401k-and-ira-rollovers.asp


References to J.W. Cole Advisors, Inc. (JWCA) are from prior registrations with that company. J.W. JWCA and Advisory Services Network, LLC are not affiliated entities.