Financial Blog For Busy Families & Impact Investors

Linda Rogers 2/17/23 Linda Rogers 2/17/23

4 Law Changes that May Affect You - SECURE ACT 2.0 [video]

Here’s what you need to know about The SECURE Act 2.0 - some of the highlights.

transcript

Here’s what you need to know about The SECURE Act 2.0 - some of the highlights.

#1 - Catch-up contributions have increased.

For people ages 60 to 63, the contribution limit now is $10,000 versus $7,500. This is starting in 2025. For people making over $145,000, all of your catch up contributions need to be Roth.

#2 - RMD ages have been pushed back.

It was age 72. It is now age 73. And starting in 2033, the RMD age is now 75. This just gives you more opportunity to do more Roth conversions before those RMDs begin.

#3 - Qualified Roth 401ks no longer have the RMD requirement starting in 2024.

Roth IRA's don't have the RMD requirement. Qualified Roth 401ks did. That was confusing. People were doing rollovers of Roth 401ks to Roth IRAs just to avoid the RMD requirement. You no longer have to do this.

#4 - Unused 529 money can now be rolled into a Roth IRA (starting in 2024), but there are some requirements.

The 529 account beneficiary has to be the same as the Roth IRA owner.
The 529 account must be at least 15 years old.
The annual limit is limited to the IRA contribution limit for the year, minus any contributions you've already made.
The lifetime limit is $35,000 per beneficiary, and
Contributions made in the last 5 years will be ineligible to do a Roth conversion.

Here are some of the highlights. Reach out to your Advisor to make sure that you're taking advantage of any planning opportunities that may have arisen with this law change. My name is Linda Rogers, Owner of Planning Within Reach.

Linda Rogers, CFP®, EA, MSBA is the owner and founder of Planning Within Reach, LLC (PWR). Originally from New Jersey, Linda services clients throughout San Diego county and nationwide. She leads the design of PWR's investment portfolios which utilize broad, low-cost investments that integrate environmentally, socially, and governance (ESG) factors.

Planning Within Reach, LLC (PWR) is a fee-only and fiduciary wealth management firm offering one-time comprehensive financial planning, ongoing impact-focused investment management and tax preparation services in San Diego and nationwide. PWR is a woman-owned firm that specializes in busy professionals and impact investors. Planning Within Reach, LLC and their advisors do not receive commissions and do not hold any insurance licenses or brokerage relationships.

Linda Rogers 2/10/23 Linda Rogers 2/10/23

Your Job Loss Action Plan

Were you recently laid off? Are you being offered an early retirement package? Here is a list of actionable steps to help you navigate this period of uncertainty.

Were you recently laid off?

Are you being offered an early retirement package?

Here is a list of actionable steps to help you navigate this period of uncertainty.

Review your Insurance

Health Insurance

If you were receiving health insurance through work, determine your options with the Human Resources Department. The Consolidated Omnibus Budget Reconciliation Act (COBRA) may give you the right to continue your group coverage for a period of time, but it is not necessarily the cheapest or best option. Go to Healthcare.gov to view an alternative - a Marketplace Plan. ‘Job loss’ is one of the exceptions that qualifies you for a special enrollment period. You have 60 days to select a plan or you will have to wait for the next open enrollment period (November 1 - January 15).

Life Insurance

Life Insurance is not part of COBRA. If you lose your job, you lose your group coverage. Determine the amount of coverage you need and look into obtaining a private policy if necessary.

Be Ready to do a Roth Conversion if you Have a Low-Income Tax Year

A Roth Conversion is when you take a portion of your pre-tax money (money in a 401k, 403b, or IRA) and convert it to tax-free (Roth) money. The amount you convert is taxable.

For people with high income, a Roth conversion is not very appealing because they are already in a high tax bracket and a Roth conversion can bump them into an even higher one. However, a low-income year may present the opportunity to pay only 10% or 12% on the converted amounts versus 35% in a normal year.

Here is an example - I had a new client that left her job and decided to go back to school. We did a tax projection and she was on track to have negative taxable income with her deductions. It was a no-brainer to convert at least enough to get her taxable income to zero (free conversion), but we kept going and converted enough to fill up the 10% bracket.

Evaluate What to do with your Old 401k

I get this question all the time and the answer is - maybe nothing. You don’t have to move your 401k unless it does not meet certain balance requirements, typically around $5K. When I left my first job, Fidelity hounded me with notifications about rolling my 401k into an IRA, so I did. I didn’t know:

(1) My balance was higher than the required amount and I could have left it where it was.

(2) You may lose creditor protection by moving your 401k to an IRA. This varies by state, but in general, 401k plans are shielded from creditors in the event you file for bankruptcy while IRAs may not be.

(3) Many 401ks give you the option of taking penalty-free distributions if you leave your employer at age 55. With an IRA, in general, you cannot distribute funds penalty free until age 59 ½.

(4) You may be able to take advantage of net unrealized appreciation (NUA) when you hold company stock in your 401k. This does not apply to IRAs.

(5) If you have a TSP (the government’s version of a 401k), you have access to the G Fund. This fund is unlike any other fund, and having access to it may be reason enough to keep your money in the TSP. What’s unique about the TSPs G Fund?

Get a Financial Plan in Place

If you are going through a job transition right now, talk to your Advisor. It is worth having a fresh perspective on something as stressful and emotional as an unexpected job loss. A good Advisor will help you get organized and confirm that you are taking advantage of any planning opportunities.

Linda Rogers 1/17/23 Linda Rogers 1/17/23

Rules Have Changed for Children Inheriting IRAs

If you inherit an IRA or Roth IRA from a non-spouse (such as a parent), the rules have changed. Here is what you need to know.

When someone with an IRA dies, the investment company that holds the IRA will review the beneficiary form to determine who is entitled to the money in the account.

While the rules for those inheriting a deceased spouse’s IRA have not changed, The Secure Act of 2017 changed the rules for non-spouses inheriting IRAs in the year 2020 or later. Here is what you need to know.

NEW: If an IRA Owner Dies on 1/1/2020 or Later

A non-spouse beneficiary should transfer the decedent’s IRA to a new “Inherited IRA” or “Inherited Roth IRA” in their own name.
- For example, if one of my parents dies and leaves me an IRA, then I would open up an Inherited IRA FBO (for the benefit of) Linda Rogers at the custodian of my choosing. I would then do a trustee-to-trustee transfer to move the money from the current IRA to the new Inherited IRA, avoiding any tax consequences. Similarly, if my parent leaves me a Roth IRA, I would set up an Inherited Roth IRA.
- The IRS requests that the new Inherited IRA indicates the original owner and the beneficiary. Most investment firms will title the account something like this: John Smith, IRA (deceased on 1/5/2021) FBO Linda Rogers, beneficiary.

Required Distributions from Inherited IRAs

If the beneficiary is a non-spouse and is not eligible for an exception (see below), here are the new rules that they need to follow. (This is what changed with The Secure Act of 2017.)

The money in the newly established “Inherited IRA” or “Inherited Roth IRA” needs to be distributed within 10 years after the death of the original account owner.
The 10-year mark starts the year after death and ends 10 years later on December 31st. For example, if someone dies in 2020, then Year 1 is 2021 and the new Inherited IRA or Inherited Roth IRA account needs to be emptied by 12/31/2030.
Clarification from recent IRS guidance - While everyone read the new law as saying beneficiaries could distribute as much as they wanted, or none at all, as long as the account was emptied by year 10, the IRS contradicted that in recent guidance. If the original owner was subject to RMDs at their death, the beneficiary needs to continue taking RMDs. These new rules will become effective in 2024 according to another round of guidance.
Inherited IRA distributions will not be subject to a penalty for those that are under the age of 59 1/2, but beneficiaries will pay ordinary income tax rates on the Inherited IRA distributions. Distributions from Inherited Roth IRAs are tax-free.

Exceptions: If the beneficiary of the IRA falls into one of the exception categories listed below, they have the option to take required minimum distributions (RMDs) based on their life expectancy.

Surviving spouse
Minor child
Disabled
Chronically ill
Anyone less than 10 years younger than the deceased account holder (such as a sibling)

Financial Planning Strategies to Consider Given the Law Change

If you are a non-spouse beneficiary that does not qualify for one of the listed exceptions (disabled, chronically ill, etc), and the original owner was not subject to RMDs at their death, you are not required to take any distributions from the Inherited IRA or Inherited Roth IRA within the 10-year period. You can distribute everything at once, everything in Year 10, or spread out the payments evenly over the 10 years. Given this flexibility, it may make sense to leave all of the money in the Inherited Roth IRAs for as long as possible. Doing so will maximize the tax-free growth in the account and a full distribution can be made in Year 10 with no tax consequences.

For Inherited IRAs, the decision is more complicated. Do a tax projection to understand how your marginal tax bracket will be affected by different distribution strategies. It may make sense with Inherited IRAs to distribute 1/10th of the account every year to avoid a big tax bill that may come with distributing everything all at once. Or, perhaps you plan on retiring in 5 years and will wait and take distributions at that time when you expect to be in a lower tax bracket.

If you Inherit an IRA, work with a Financial and Tax Professional.

Work with someone that is staying on top of law changes and who understands the financial and tax consequences of different strategies. Subscribe to PWR’s newsletter below for more financial and tax tips.

Updated 1/17/2023 to reflect recent IRS guidance.

Linda Rogers 10/17/22 Linda Rogers 10/17/22

Medicare and HSAs after Age 65

Even though you are eligible for Medicare at age 65, you may choose to continue using your employer’s health insurance and saving to an HSA. While nearly everyone assumes that the minute you switch to Medicare is when you should stop contributing to the HSA - it doesn’t work that way. There is a 6-month lookback period when you enroll in Medicare at age 65 or later (not to precede the month of your 65th birthday). Therefore, if you plan on enrolling in Medicare, you have to stop contributing to the HSA 6 months prior or you may have to remove excess contributions, pay a penalty, or amend your tax return.

What is an HSA?

Health savings accounts (HSAs) are vehicles that allow you to use tax-free money to pay for qualified medical expenses. The money you use to fund the account is not subject to federal income tax (or state income tax in most states) and employer contributions are not taxable to the employee. Unlike a flex savings account (FSA), the money contributed to an HSA can be rolled over from year to year - there is no "use it or lose it" feature. For 2022, the max that can be contributed to an HSA is $3,650 for one person or $7,300 per family.

Who can use an HSA?

In order to contribute to an HSA, you are required to be enrolled in a high-deductible health plan (HDHP). You cannot contribute to an HSA if you are on Medicare Part A, but if you had an existing HSA account, you can use the funds to pay for qualified medical expenses while you are on Medicare. Considering Medicare doesn't pay for all medical expenses in retirement, and that this money is tax-free, there is a planning opportunity to over-fund an HSA during your working years to use tax-free in retirement.

Be careful if you plan to work close to or past 65 and you are saving to an HSA.

The rule has good intentions.

The lookback came about because there was a desire to make sure that people transitioning from private coverage to Medicare did not have a gap in coverage, thus the look-back. But by mandating the 6 months of coverage prior to enrollment, it invalidated people’s HSA contributions without them realizing it. The 6-month lookback could become voluntary at some point, but for now it is mandatory.

With more people utilizing HSAs and working longer, this nuance is catching people off guard.

Even if you are a good planner, you may get laid off. Life happens! What do you do if you get caught in this unintended trap? If you make an overcontribution to your HSA:

Notify your HSA bank immediately and have them reverse the contributions.
Check your W-2 for the year of the over-contribution carefully. You may need to request an amended W-2 to account for the fact that you removed the excess contributions.
If you realize the error after you already filed your taxes, contact your tax preparer to amend your return and help you calculate the penalty.

Linda Rogers 9/14/22 Linda Rogers 9/14/22

Denied life insurance? What to do next [video]

Don’t panic if you are denied life insurance. Here is a list of your next steps.

Let's say that you go to purchase life insurance and you're denied coverage. That can be really scary and I have seen this happen to clients. Perhaps they were diagnosed with cancer in the past or some other health issue.

Determine why you were denied and when you should consider re-applying.

The first thing you want to do is reach out to your life insurance agent and determine why you were denied coverage. You can also ask what the insurance company needs to see to be able to feel comfortable to issue you a policy in the future. For example, I've had it where a client had to show a clean bill of health for a certain number of years, she was able to re-apply, and obtain coverage at that time.

Review your benefits booklet at work.

Another thing to look at is if you work for an employer, see if they offer a life insurance benefit. Many of them do offer some sort of coverage without a medical exam, maybe 1 X salary or 2 X salary.

Develop a financial plan to understand how you can best protect your loved ones.

Meet with a financial planner and develop a plan to save aggressively and pay down debt. That will set you and your family up to the best financial situation possible. So if something does happen to you and your loved ones don't have that life insurance coming in, they are in a good place.

So get with your life insurance agent, your financial planner, and develop a plan for going forward.

My name is Linda Rogers, Owner of Planning Within Reach.

Linda Rogers 9/2/22 Linda Rogers 9/2/22

What happens to your money if you die during the divorce process?

Because things are “frozen” in a sense while the divorce process is ongoing, it is a valid concern that your soon-to-be ex-spouse could receive your share of assets if something happens to you. From the law’s perspective, if you die before the divorce is final, your spouse is still considered the surviving spouse even though you were in the middle of a divorce.

The divorce process can take months, if not years, to complete. What if you die before the divorce is final?

Once a spouse is served divorce papers, the divorce process officially begins. At that time, both parties are forbidden from making certain changes to their accounts and finances.

Because things are “frozen” in a sense while the divorce is ongoing, it is a valid concern that your soon-to-be ex-spouse could receive your share of assets if something happens to you. From the law’s perspective, if you die before the divorce is final, your spouse is still considered the surviving spouse even though you were in the middle of a divorce.

While death is probably not top of mind for many, those that are divorcing later in life or whose health takes a turn for the worse during the process can be extremely concerned. The rules surrounding divorce and estates are state-specific and complicated, but you have options to make your intentions known. Here are some talking points to discuss with your attorney to help you develop a plan of action.

During the Divorce (after a spouse has been served divorce papers)

Once the divorce process officially begins, both spouses are subject to their state laws which typically include an Automatic Temporary Restraining Order (ATRO). The ATRO outlines actions you are prohibited from taking until the divorce is final. Review this very carefully with your attorney to avoid a violation.

Examples of prohibitions in ATROs:

Cashing out or borrowing against life insurance policies
Making trades in any accounts
Changing beneficiaries on your accounts

What can you do?

Ask your attorney about taking the following steps during the divorce process.

Revoke your current will, which likely says you are leaving everything to the surviving spouse, and create a new will leaving everything to your desired beneficiaries (children, charity, other family members, etc).
Revoke your revocable trust, which also likely points everything to the surviving spouse.
Eliminate the “rights of survivor” titling on accounts. For example, if you have a JTWROS account (joint tenancy with a right of survivorship), see if you can change it to a tenants-in-common (TIC) account. That would allow you to leave your share of the asset to your desired beneficiaries versus your spouse.
Create a new healthcare directive. This document names those who can make medical decisions on your behalf if you are incapacitated.
Create a new financial power of attorney. This document names those who can make financial decisions on your behalf if you are incapacitated.

After the Divorce is Final

At this point, engage a financial planner to update your financial plan and ensure that you are on track to meet your financial goals. They will guide you on important steps you may need to take such as:

Rebalancing your portfolio,
Updating your beneficiaries,
Updating the titling on your accounts, and
Meeting with an attorney to create new estate planning documents.

CONTACT LINDA FOR A FREE INITIAL CALL

Linda Rogers 5/19/22 Linda Rogers 5/19/22

Should you Report your Rent Payments to Credit Bureaus?

Mortgage and auto payments are automatically reported to credit agencies, but rental payments are not. New services, however, are making it easier than ever to report this information. If your landlord gives you the option to report your rental payment history to the three (3) credit agencies - should you opt-in?

Having a good credit score is an important component of financial health. It can affect the rate you receive on a loan, or if you receive the loan at all. Making timely credit card payments, being listed as an authorized user, or obtaining a secured credit card are some ways to build your credit. What if you could also benefit from simply paying your rent on time?

Mortgage and auto payments are automatically reported to credit agencies, but rental payments are not. New services, however, are making it easier than ever to report this information. If your landlord gives you the option to report your rental payments to the three (3) credit agencies - should you opt-in?

Who could benefit from reporting their rental payments?

Rental payment data alone is not going to drastically improve someone’s credit score. The most commonly used FICO® score does not currently include rental payments in its calculation, but the FICO® 9, FICO® 10, and VantageScore do. Rental payments will, however, be listed on every credit bureau’s full credit report as a separate “tradeline”.

For someone who has good credit with multiple tradelines, such as a credit card or auto loan, reporting rental data likely won’t make a big difference. Others, such as those that have limited assets or credit histories, could go from having unscorable credit to a good score with the inclusion of rental payments. Examples might include a recent graduate with student debt or a low-income family that doesn’t have a car loan or credit card.

The Role of Landlords in Reporting Rental Payments

There is no requirement for a landlord to report rental payments, but it is something they may consider given the benefits - better data for the next landlord and rewarding the timely tenant. For people in California, their state just passed SB1157 which requires certain landlords of subsidized housing to offer to report a tenant’s rental payments to a credit bureau.

Many landlords and property managers already use a rent payment service to charge and collect rents. Now they can choose a service, such as eRentPayment, Zego™ Pay LevelCredit Reporting, Esusu, and Rentler, that offers the ability to also report rental payments to the credit bureaus. Some include this service as part of their standard fee and others charge a separate fee that can be paid by the tenant, the landlord, or split between both.

Should you opt-in?

If your landlord offers to report your rents for free, consider opting in. You have nothing to lose and it will provide a future landlord or lender a more complete picture of your credit history.

If there is a charge, weigh your options. It is likely not worth it if you already have good credit without the rental data. If you don’t have good credit, it is something to evaluate along with other, perhaps cheaper ways to build your credit, such as being an authorized user on someone else’s card or obtaining a secured credit card.

Regardless of whether you opt-in or not, missed rental payments are typically reported to a collections agency which gets reported to the credit bureaus, negatively impacting your credit. So opting out doesn’t let you completely fly under the radar - it is just removing any potential benefit you may receive from not missing a payment.

Planning Within Reach, LLC (PWR) is a fee-only and fiduciary wealth management firm offering one-time comprehensive financial planning and ongoing impact-focused investment management in San Diego and nationwide. PWR is a woman-owned firm that specializes in busy professionals and impact investors. Planning Within Reach, LLC and their advisors do not receive commissions and do not hold any insurance licenses or brokerage relationships.

Linda Rogers 4/27/22 Linda Rogers 4/27/22

Avoid this common mistake - excess cash in retirement accounts [video]

Cash has a place in a portfolio, however, too much cash is not a good thing.

Cash has a place in a portfolio, however, too much cash is not a good thing. Cash can be a really good choice for an emergency fund or a short-term savings goal because it's low risk. You'll know the money is available when you need it, regardless of what the stock and bond market does. But for long-term goals, cash is not a good option because it has really low returns, if not negative returns when you take into account inflation.

Don’t hold cash in your long-term savings accounts.

It's not uncommon for me to see younger investors with cash in their IRA, Roth IRA, 401K, and 403b. These are retirement accounts that you can't distribute from until you're age 59 1/2 without paying a penalty for the most part. There are exceptions, but most people will keep their money in these retirement accounts until at least that age, if not longer. So why the excess cash?

Confirm that your future retirement contributions are being invested automatically.

The two main reasons that I come across is one, they think that their future contributions are being invested automatically. So perhaps they just invested $6,000 into their Roth IRA and they thought it was automatically going into one of the investments in their account. That wasn't the case. So that's a call or reaching out to the investment company to see if you can set that up so that future money will be invested as you dictate. That will prevent the cash from just sitting idly or having another thing on your to-do list - to go in and make sure it's invested.

Confirm interest and dividends are being reinvested.

The other reason I see is that stocks and bonds pay interest and dividends. That income could be reinvested or paid to cash. So it could be that the interest and dividends are set to pay to cash, and that is why the cash is accumulating in the account. Again, just really easy to contact the investment company if you're not able to do it online and have interest and dividends reinvested in the accounts that are meant for those long-term goals.

Reach out with any questions. My name is Linda Rogers, Owner of Planning Within Reach.

Linda Rogers 4/13/22 Linda Rogers 4/13/22

Are Crypto ETFs Worth Investing In?

Cryptocurrency continues to explode in both adoption and interest. It was only a matter of time until crypto ETFs came on the scene. Are they worth investing in?

Cryptocurrency continues to explode in both adoption and interest. It was only a matter of time until crypto ETFs came onto the scene. Are they worth investing in?

Cryptocurrency in Portfolios

I don’t currently recommend cryptocurrency as an asset class in client portfolios due to its speculative nature, the lack of regulation, and its high volatility. That being said, some clients are interested in buying a small slice for their “play accounts” - accounts not relied on for retirement or other financial goals.

Bitcoin and other cryptocurrencies can be purchased through online platforms such as Coinbase, but for those that are overwhelmed by the different types of cryptocurrencies, storage fees, and security concerns, a crypto ETF is very appealing. Unlike cryptocurrency itself, crypto ETFs are regulated and listed on an exchange, making buying and selling as easy as trading a stock. While I can see the appeal, it is important to look under the hood and understand what you are investing in.

Today’s crypto ETFs are not actually investing in cryptocurrency.

To date, the SEC has only approved cryptocurrency ETFs that hold cryptocurrency futures. Futures are contracts to buy and sell a commodity at a specific price at a future date. In comparison, the spot price is the price for immediately buying and selling a commodity. In the case of ProShares Bitcoin Strategy (BITO), for example, you are not investing in Bitcoin. You are investing in Bitcoin futures that can and will vary from the spot price of Bitcoin.

Crypto ETF fees are much higher than your average ETF.

ETFs that I typically recommend for clients have an average expense ratio of .25% or lower. Crypto ETF’s range from .65% to .95%. This is due to the ETFs holding futures versus cryptocurrency. Futures need to be sold near expiration and replaced with new contracts that have later expiration dates. These transactions incur fees that are passed on to the investor.

I don’t recommend any crypto ETFs currently on the market.

Investors want exposure to the crypto asset class with something as cheap and easy as buying an S&P 500 index fund at Schwab. Unfortunately, I don’t see a good crypto ETF that checks all of those boxes at this point. That could change if the SEC allows spot-based crypto ETFs. In the meantime, buy cryptocurrency directly at a crypto exchange if you want exposure to this asset class.

Linda Rogers 3/16/22 Linda Rogers 3/16/22

What are I-Bonds?

A quick video overview of I-Bonds including their current rates and liquidity.

transcript

Hi. I am going to talk about I-Bonds. I have recommended them to clients, I have written about them on my website, but it's time to do a quick update because I'm receiving a lot of questions about them with the recent spike in inflation.

What are I-Bonds?

I-Bonds are the Series I Savings Bond. They are part of the U.S. Treasury savings bond program and they're considered low-risk investments. There are two (2) components to them:

There's the fixed component, which is a fixed rate that carries throughout the life of the bond and there's the inflation component, which is a variable rate - it is adjusted twice a year, every six months. At the moment, I-Bonds purchased through April 2022 have a fixed rate of 0%, but the inflation component is 7.12% annualized, and that's the highest it's been in over two decades.

So if you're looking for a savings vehicle that can protect your principal and maintain your purchasing power, you might consider I-Bonds. Just to give you an idea, Ally's money market rate at this moment is earning .5% and their high-yield, 5-year CD has an APY of 1%.

How liquid are I-Bonds?

I-Bonds will earn interest for 30 years, but you can access your money before that with some limitations. For the first year, first twelve months, you cannot sell the bond. So don't take money that you might need within a year and buy an I-Bond. For years 1-5, you can redeem the bond, but you'll lose the previous 3 months of interest if you do that. And then after five years, you can redeem the bond and get the current value. So if you bought an electronic I-Bond, you would log into TreasuryDirect and you will look at the "Current Holdings" tab and that would show the current value of the bond that you hold.

Possible drawbacks of I-Bonds

And just know that I-Bonds are not marketable - you can't buy and sell them on a secondary securities market. And there are limits on how much you can buy. So for the most part, you can buy $10,000 of an I-Bond per social security number per calendar year.

Despite those drawbacks, it still might be a good fit for you. So check out TreasuryDirect - here's a lot of information there. Reach out with questions.