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Understanding the Gift Tax PDF Print
Monday, 30 March 2015

Gift Tax Image

Most of us will never face taxes related to money or assets we give away.


“How can I avoid the federal gift tax?” If this question is on your mind, you aren’t alone. The good news is that few taxpayers or estates will ever have to pay it.


Misconceptions surround this tax. The IRS sets both a yearly gift tax exclusion amount and a lifetime gift tax exemption amount, and this is where the confusion develops.


Here’s what you have to remember: practically speaking, the federal gift tax is a tax onestates. If it wasn’t in place, the rich could simply give away the bulk of their money or property while living to spare their heirs from inheritance taxes.


Now that you know the reason the federal government established the gift tax, you can see that the lifetime gift tax exclusion matters more than the annual one.


“What percentage of my gifts will be taxed this year?” Many people wrongly assume that if they give a gift exceeding the annual gift tax exclusion, their tax bill will go up next year as a result. Unless the gift is huge, that won’t likely occur.  

Why Well-Diversified Portfolios Have Lagged the S&P PDF Print
Monday, 23 March 2015

DiversificationSome investors have seen minimal returns compared to the benchmark.


Diversification is essential, yet it comes with trade-offs. Investors are repeatedly urged to allocate portfolio assets across a variety of investment classes. This is fundamental; market shocks and month-to-month volatility may bring big losses to portfolios weighted too heavily in one or two classes.


Just as there is a potential upside to diversification, there is also a potential downside. It can expose a percentage of the portfolio to underperforming sectors of the market. Last year, that kind of exposure affected the returns of some prudent investors.


Sometimes diversification hinders overall performance. The stock market has performed well of late, but very few portfolios have 100% allocation to stocks for sensible reasons. At times investors take a quick glance at stock index performance and forget that their return reflects the performance of multiple market segments. While the S&P 500 rose 11.39% in 2014 (13.69% with dividends), other asset classes saw minor returns or losses last year.1


As an example, Morningstar assessed fixed-income managers for 2014 and found a median return of just 2.35% for domestic high yield strategies. The Barclays U.S. Aggregate Bond Index advanced 5.97% in 2014 (that encompasses coupon payments and capital appreciation), while the Citigroup Non-U.S. World Government Bond index lost 2.68%.1,2

Are Your Children Financially Literate? PDF Print
Monday, 16 March 2015

New Approaches to a Changing Problem

1Children Financially Literate


How bad is financial illiteracy today? So bad that your children may be at risk of making some serious financial mistakes. Some are finding that talking to children about finances has become less about the nuts and bolts of money and more about putting money's importance to our daily lives in the correct context.

Women at particular risk. The U.S. Department of Labor reports that only 45% of working women ages 21-64 have a retirement plan. The DOL also notes that more women work in part-time jobs, and are more likely to interrupt their careers to take care of family, whether that be raising children or looking after parents. Some of these patterns are just luck of the draw, but others may come from what parents teach children about money, and how they teach it.1


Start at a young age. New York Times money columnist Ron Lieber's book The Opposite of Spoiled discusses ways to prepare children for dealing with financial issues. The title refers to the author's search for an antonym to the word "spoiled" in the context of an entitled and demanding personality. Lieber suggests focusing on values like graciousness in communication, which can lead to more openness in discussing money. Money can be frightening or mysterious to many, even well into adulthood, and Lieber encourages approaching the topic with fewer facts and figures and more as an emotional issue. The reasoning for this is that money is, for children and adults, an emotional topic.2


The emotional toll of money issues. While most people have experienced money worries at one time or another, the science surrounding this phenomenon is compelling.

Social Security Survivor Benefits PDF Print
Tuesday, 10 March 2015

SS Survivor BenefitsHow do you claim them? How much can you receive?


About 5 million widowed Americans get Social Security survivor benefits. If your spouse has passed, you may be eligible to collect them. This means that you could receive as much as 100% of your late spouse's Social Security income.1,2


Some widows and widowers aren't aware of these additional retirement benefits. That's a shame, because they can provide significant financial help during a period of uncertainty.


You can file for survivor benefits at age 60. In fact, you can claim them as early as age 50 if you are disabled (per Social Security's definition of disability) and if the condition that left you disabled began before or within seven years of your husband's or wife's death. In contrast, you can't put in a claim for spousal Social Security benefits until age 62.1,3


You have to call Social Security to apply for these benefits. Dial 1-800-772-1213 to do that (or 1-800-325-0778 if you are deaf or have trouble hearing). The SSA doesn't yet permit widows and widowers to apply for survivor benefits online.1

You are actually calling to make an appointment at your local Social Security office, where you can file your survivor benefits application. The SSA says that the process will be faster if you complete its Adult Disability Report beforehand and bring it with you. You can download this form; you will find a link to it at


Are you eligible to receive all of your late spouse's Social Security income, or less? That depends on a few factors.

The Solo 401(k) PDF Print
Tuesday, 03 March 2015

A retirement savings vehicle designed for the smallest businesses.


Solo 401kA solo 401(k) lets a self-employed individual set up a 401(k) plan combined with a profit-sharing plan. You can create one of these if you work for yourself or if you own a small business with just 1-2 full-time employees including yourself (the second FTE must be your spouse).1


Reduce your tax bill while you ramp up your retirement savings. Imagine nearly tripling your retirement savings potential. With a solo 401(k), that is a possibility. Here is how it works:

  • As an employee, you can defer up to $18,000 of your compensation into a solo 401(k) in for 2016.1
  • As an employer, you can have your business make a tax-deductible contribution of up to 25% of your compensation as defined by the plan. If your business isn't incorporated, the annual employer contribution limit is 20% of your net earnings rather than 25%. If you are a self-employed individual, you must calculate the maximum amount of elective deferrals and non-elective contributions you can make for yourself using the methods in IRS Publication 560.1,2
  • Total employer & employee contributions to a solo 401(k) are capped at $53,000 for 2015; if you are 50 or older, you can also make an employee catch-up contribution of up to $6,000 for 2015.1,6

If you are 50 or older and self-employed, you could potentially put as much as $59,000 into a solo 401(k) for 2015. Now add your spouse to the mix. Is he or she age 50 or older and a full-time employee of your business? Then the two of you could potentially contribute up to $118,000 to the plan.1,6



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