What's In Your Financial Checklist?

By Frederick A. Fisher MS, CFP®

Rick Fisher, Ostrofe Financial Consultants

While many of us are spending more time at home due to COVID-19, this may be a good time to work on our personal finances. One way to start is to create a financial checklist to make sure we are addressing all important aspects of our financial lives. Though not in any order, the important thing is to address each item as appropriate.

A good place to start is with a budget. A realistic formalized budget can help build a solid financial foundation. This will help the household finances grow and keep financial goals on track. The key to an effective budget is ongoing monitoring and making realistic goals that can adapt to changing circumstances.

Next, have you set a goal for building an emergency fund? This fund can be used for unforeseen expenses. A reasonable goal is three to six months of basic living expenses. Depending on your budget, this may take a year or two to accumulate.

A retirement savings plan should also be toward the top of the list. This goal is more long-term than the emergency savings and will take decades to build. This will be vital for a comfortable retirement. Setting a realistic goal will depend on income, number of years till retirement, and expected cash flow at retirement. In order to achieve your emergency fund and retirement savings goals, it will be important to fund these as a non-discretionary expense, along with housing, food and transportation expenses.

One of the most neglected financial items on our checklist is life insurance on the wage earners. No one expects an untimely death but should a wage earner die it can leave a family financially and emotionally devastated. There are many tools to estimate how much is needed, and many types of insurance to fit almost any budget or goal.

Another often neglected item on a financial checklist is estate planning. Items like wills, trusts, and powers of attorneys are critical for proper financial management and protecting the family from unnecessary cost and delays in estate settlement. Using an attorney who specializes in estate planning is important; he or she will be able to recommend a plan that is appropriate and affordable.

The last item on our financial checklist is tax planning. Proper tax planning can save you money and prevent tax surprises, which can be costly and usually avoidable. From proper withholding, deduction tracking, and capital gains management, there are plenty of items that need to be monitored. This

financial checklist is just a start and can be expanded to include proper casualty insurance coverage as well.

Should you want more information on our financial checklist give us a call at 530-273-4425 and discover our beyond investments approach.

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The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.

Frederick Fisher is a Registered Representative with, and Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through Ostrofe Financial Consultants, Inc., a Registered Investment Advisor and separate entity from LPL Financial.

For questions or suggestions, contact Frederick at (530) 273-4425, or frederick.fisher@lpl.com, or visit ostrofefinancial.com. Branch address: 420 Sierra College Drive, Suite 200, Grass Valley.

COVID-19 in the News (May 2020)

Read how the media is reporting during May on news related to COVID-19 (Coronavirus).

• While cafes and restaurants are going back into business, not everyone is returning to work (Fox Business).

• How do you pay off credit card debt during a global crisis? (Fox Business).

• According to CNBC, online grocery shopping is now practiced by 10-15% of Americans.

• Yahoo! Finance looks at the falling mortgage rate, a new record low for the U.S.

Quarterly Economic Update: A review of Q1 2020

In this Q1 recap: COVID-19 hits the United States, followed by heavy economic volatility, government stimulus, and an as-yet untold human cost. 

A review of Q1 2020, Presented by Seth Leishman 

THE QUARTER IN BRIEF

The spread of COVID-19 sent stocks tumbling in the first quarter, as health and economic costs of the pandemic began to mount. Stocks remained under pressure despite the Federal Reserve’s lowering of short-term interest rates and the government’s stimulus efforts through the Coronavirus Aid, Relief, and Economic Security Act (CARES) Act. The DJIA sank 23.2% and the S&P 500 dropped 20% on the quarter. The volatility following the novel coronavirus has left all but a handful of sectors in a prolonged period of uncertainty. With millions of Americans staying at home in an effort to “flatten the curve” of COVID-19’s impact on people, businesses are coping with closing for the duration, altering practices, or facing staffing issues.1 

DOMESTIC ECONOMIC HEALTH

The Federal Reserve cut interest rates to zero on March 15 and announced several monetary actions designed to support households and businesses. However, markets were unfazed by the Fed’s aggressive move, electing to instead focus on the contraction of economic growth that many are expecting. Millions of Americans have applied for unemployment, with a spike of 3.3 million seen in March. Layoffs and furloughs are foreseen throughout early Q2.2,3

The Consumer Price Index (CPI) registered an annualized advance of 2.4% in February, ahead of the COVID-19 volatility in the United States. Inflation was ahead 0.1% in the same period. Consumer spending was at 0.2% in the middle of the quarter, with the University of Michigan’s Consumer Sentiment Index at 101.0. Retail sales were at 4.35%, annualized. The Institute of Supply Management (ISM) Purchasing Managers Index (PMI) up nearly two points to 57.3, mid-quarter. All these figures may be revised dramatically in the second quarter as more data is compiled about the economic cost of the pandemic.4,5

GLOBAL ECONOMIC HEALTH

The main story in China for the first quarter of 2020, affecting nearly every aspect of the Chinese economy, has been the COVID-19 outbreak. Anticipating the rough road ahead, a number of international financial institutions have revised their growth estimates for China downward, leaving some to predict the worst year in decades. Despite this, the Caixin/Markit Manufacturing PMI came in at 50.1 in March, just within the realm indicating growth, and up from February’s 40.3. As the quarter came to a close, U.S. lawmakers were questioning the accuracy of China’s reported number of COVID-19 cases as the U.S. grappled with the pandemic.6,7

European countries are also facing hardship, with Italy and Spain seeing a higher-than-average number of cases. The European Commission predicts a recession, with the overall gross domestic product (GDP) sinking 1% for 2020. This follows 1% of growth for the GDP in the final quarter of 2019. Facing heavy unemployment, the European Commission set up a 100 billion euros ($110 million in U.S. dollars) program to help keep workers employed, while also pledging to purchase as much as 750 billion euros to keep markets at ease through the purchase of financial assets.8,9,10

WORLD MARKETS

The arrival of COVID-19 signaled volatility around the globe. The numbers at the end of the quarter include: the U.K.’s FTSE 100 (-13.81%), the German Dax (-16.44%), the French CAC 40 (-17.21%), Japan’s Nikkei 225 (-10.53%), Australia’s All-Ordinaries (-21.51), Mexico’s Bolsa (-16.38%), Brazil’s Bovespa (-29.90), China’s Shanghai Composite (-4.51), Hong Kong’s Hang Seng (-9.67), South Korea’s Kospi Composite (-11.69), and Russia’s RTS (-21.95).11,12

The MSCI EAFE Index (which measures performance across developed stock markets outside North America) took a 14.77% fall at the end of Q1.13 

COMMODITIES MARKETS

The oil market dominated the commodities headlines during the first quarter. The failure of Russia to join Saudi Arabia in supporting lower oil production targets left Saudi Arabia fuming and responding with an announcement of its intention to raise oil output. Oil prices plummeted on the news, contributing to the stock market’s woes. While lower oil prices represent a boon to consumers in the form of lower gasoline prices and a relief to companies with high energy consumption (e.g., airlines, chemical), they also pose a risk to the American energy industry.

Should low oil prices persist, it may lead to lower capital expenditures, labor force reductions, and troubles in the credit markets as less-capitalized companies struggle to meet their debt obligations. As the quarter came to a close, there was some speculation that President Trump would take a larger role in working with Russia and Saudi Arabia on production targets.

Elsewhere, WTI crude closed out the quarter at $20.34 a barrel. Gold finished the quarter at $1,572 an ounce on the NYMEX; silver, at $13.98 an ounce.14,15 

REAL ESTATE

Across the first quarter, new home sales moved from -0.4% for December to 7.9% in January and down again to -4.4% in February. Existing home sales for February rose 6.5%, compared to a 1.3% decrease for January and a 3.6% increase in December 2019. Housing starts declined over Q1 starting at 16.9% for December, -3.6% for January, and -1.5% for February.4

Mortgage rates started the first quarter (January 2) at 3.72% for 30-year mortgages, 3.16% for 15-year mortgages, and 3.46% for 5/1-year mortgages. At the end of the quarter (March 26), the 30-year mortgages were at 3.5%, 2.92% for 15-year mortgages, and 3.34% for 5/1-year mortgages.16

30-year and 15-year, fixed-rate mortgages are conventional home loans, generally featuring a limit of $484,350 ($726,525 in high-cost areas) that meet the lending requirements of Fannie Mae and Freddie Mac, but they are not mortgages guaranteed or insured by any government agency. Private mortgage insurance, or PMI, is required for any conventional loan with less than a 20% down payment. 

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T I P   O F   T H E   Q U A R T E R

Online tax calculators are handy, but keep in mind that they typically only calculate your federal tax rate. Most don’t take state or FICA taxes into account. Also, calculators are not designed to be a replacement for real-life advice, so make sure to consult your tax, legal, or accounting professional before modifying your tax strategy.

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LOOKING BACK, LOOKING FORWARD

This first quarter of 2020 was one of the worst for stocks in U.S. history. The Dow Jones Industrial Average (DJIA) closed at 21,917.16 for the quarter. The Standard and Poor’s 500 (S&P 500) ended Q1 at 2,584.59, while the NASDAQ Composite Index closed at 7,700.10.17

Sources: barchart.com, wsj.com, bigcharts.com, treasury.gov - 3/31/20

Indices are unmanaged, do not incur fees or expenses, and cannot be invested into directly. These returns do not include dividends. 10-year TIPS real yield = projected return at maturity given expected inflation.

It is difficult to see, in the middle of the COVID-19 epidemic, exactly what the full impact will be. Suffice it to say, the cost in human terms has been staggering so far and seems certain to affect at least part of the coming quarter. As people and businesses adapt to extended periods of quarantine, the only thing that seems clear is that no aspect of American life will be unchanged. CARES Act stimulus checks are on the way for millions of Americans. The Federal Reserve has lowered interest rates. Further measures are being considered at the state and federal level. The only two things that seem truly certain are that action is being taken and that we’ll all breathe a sigh of relief once this crisis subsides. 

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Q U O T E   O F   T H E   Q U A R T E R 

“If we are to learn to improve the quality of the decisions we make, we need to accept the mysterious nature of our snap judgments.”

MALCOLM GLADWELL 

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This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. The information herein has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. Investments will fluctuate and when redeemed may be worth more or less than when originally invested.

This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. 

All market indices discussed are unmanaged and are not illustrative of any particular investment. Indices do not incur  management fees, costs and expenses, and cannot be invested into directly. All economic and performance data is historical and not indicative of future results.  Additional risks are associated with international investing, such as currency fluctuations, political and economic instability and differences in accounting standards. This material represents an assessment of the market environment at a specific point in time and is not intended to be a  forecast of future events, or a guarantee of future results.

MarketingPro, Inc. is not affiliated with any person or firm that may be providing this information to you. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. 

CITATIONS:

1 - CNN.com, March 31, 2020. 2 - Reuters, March 31, 2020. 3 - MarketWatch, April 1, 2020. 4 - Investing.com, April 1, 2020. 5 - MarketWatch, April 1, 2020. 6 - CNN.com, April 1, 2020. 7 - MarketWatch, March 31, 2020. 8 - Bloomberg, March 13, 2020. 9 - CNBC.com, April 1, 2020. 10 - New York Times, April 2, 2020. 11 - New York Times, March 31, 2020. 12 - Barchart.com, March 31, 2020. 13 - MarketWatch.com, March 31, 2020. 14 - Barchart.com, April 2, 2020. 15 - BusinessInsider.com, April 2, 2020. 16 - FreddyMac.com, April 2, 2020. 17 - Bloomberg.com, March 31, 2020. 

COVID-19 in the News (April 2020)

Here are some interesting articles in the news that we have been reading to bring you up to date on what is happening with businesses and communities in relation to the challenges caused by COVID-19.

CNBC asks, How will families celebrate Easter during the quarantine?

CNN reports that the U.S. lost 701,000 jobs in March, worst month since 2009.

Entrepreneur asks if losses related to COVID-19 are covered by your business insurance.

USA Today covers how to host a virtual Passover seder.

Forbes examines purchasing life insurance coverage during the COVID-19 crisis.

CNBC examines how the post-coronavirus economic downturn compares to earlier examples.

Follow us on Facebook to see news like this in your personal Facebook feed.

“Where is my stimulus check?” NBC News covers the process.

Will the custom of shaking hands continue after COVID-19? Fox News takes a look.

CNBC reports that U.S. jobless claims have risen by 6.6 million. This eliminates 10% of the U.S. workforce.

Techspot takes a look at delivery apps and whether or not they are actually helping restaurants.

How Has the New “SECURE Act” Changed Your Retirement and Estate Planning?

By Allen Ostrofe | Download PDF

We received a call from Tom & Siobhan from Walnut Creek, California.  They asked how the “Setting Every Community Up for Retirement Enhancement (SECURE) Act”, signed on December 20, 2019, might impact their retirement/estate planning. Both are employees, 69 years old, and charitably inclined. Both did not want to start taking required minimum distributions from their retirement at age 70.5 years. Instead, they both wished to extend the distributions of their IRAs, after their deaths, to their grandchildren ages 10 and up, for the duration of their grandchildren’s lifetimes. This example is called a “Stretch IRA”.  The new Tax Act has changed their plan!

1. Why a Tax Law Change?

The answer depends upon whom you ask. Our Congressmen and Senators state that 700,000 more Americans will have access to retirement plans (source: American Council of Life Insurers). Small businesses are being offered tax credits from $500 to $5000 to start a new plan. However, those of us who frustratingly watch our government’s “deficit spending” believe it helps offset the government’s tax revenue loss from too much deferring of our required minimum distributions (RMD’s). One Certified Financial Planner (CFP®)—those who are held to the highest “Fiduciary Standard”—states: “From an advisor standpoint, I’m more than happy to trade off the loss of the stretch IRA to postpone the RMD age a bit longer, and be able to contribute longer!  10-years of deferring taxable income (instead of over the beneficiary’s lifetime) is still financially favorable!”

2. How Will the Change for the Start of RMDs affect Tom and Siobhan?

Will the change from 70.5-Years (or April 1st of the following year) to age 72 improve Tom and Siobhan’s distribution plan? Since Tom and Siobhan have no plans to retire soon, and they do not own more than 5% of their company, this is a windfall. They gain up to two years tax-deferred compounding of their untouched retirement funds, and they can still contribute more! They still have the option at age 70.5 years to make tax-free contributions to qualified charities (501c[3]) of their choice from their IRA, up to $100,000 per year. This strategy avoids taxes completely, while benefitting cash-strapped non-profit organizations.

3. What Amendments Will Tom and Siobhan Need to Make to Their “Stretch IRA” Strategy Due to the New Tax Law?

Under the old law, designated beneficiaries of an inherited IRA, ROTH, 401k, or 403(b) had the ability to “stretch” the distributions over their life expectancy. The SECURE Act reduces the maximum distribution period from these accounts (any owner who died after December 31, 2019) to 10 years. There are no requirements that payments be taken every year, just that the account must be fully liquidated by the end of 10 years. There are exceptions to the 10-year rule for surviving spouses, disabled individuals, beneficiaries less than 10 years younger than the account owner, and minor children of the account owner. These individuals will still be allowed to take a life-expectancy payout. We suggest scheduling a meeting with both a Certified Financial Planner (CFP®)  and an estate planning attorney to develop an alternative strategy to ensure “income for life” for individuals not exempted from this new law, like older grandchildren.

4. What Else Should I Be Reviewing Now?

The beneficiaries of your IRAs, ROTH IRAs, 401k’s, and 403b’s generally are controlled neither by your will nor your trust. Review with your CFP® to make sure that your current beneficiaries are accurate for every single retirement (or insurance) plan. Make certain that you have named “contingent beneficiaries”. Review to make certain you have named “real people” as beneficiaries or ask your advisor whether it is prudent to name a trust as beneficiary or contingent beneficiary. One downside of some trusts as beneficiary, is that the trust may be forced to liquidate over a 5-year, not 10- year period. Check that you have included “Per Stirpes” next to those beneficiaries where you wish their kids subsequentially included.

Tom and Siobhan have made necessary changes in the retirement and estate planning.  How about you?  And, if you know of someone who is over 70.5 years and still working, they might consider continuing to contribute to their IRA.

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The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. 

The content provided herein is based on our interpretation of the SECURE Act and is not intended to be legal advice or provide a tax opinion.  This information is a summary only and not meant to represent all provisions within the SECURE Act.  Please consult your financial advisor regarding your specific situation. 

Allen Ostrofe, MBA, CFP®, is President Emeritus of Ostrofe Financial Consultants, Inc., with clients in 32 states and is a registered Representative with, and Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through Ostrofe Financial Consultants, Inc., a Registered Investment Advisor and separate entity from LPL Financial. For questions or suggestions, visit ostrofefinancial.com. Branch address: 420 Sierra College Drive, Suite 200, Grass Valley.

‘Tis the Season: 7 Tips for Teaching Your Kids About Finances

By Allen Ostrofe | Originally published in The Union | Download the PDF

Last week, Marge and Bob called from St. George, Utah. They had concerns about their teenagers. They asked what experience we have in handling financial education for that generation. Their son, Bobby Jr. (age 13) hoarded his allowance, would rather trade than buy new, and was overall parsimonious. Their daughter Jessica (age 16) never saw a bargain she couldn’t pass up, focused on discounts and not what she was spending, and bought things because she “needed and deserved them”.  We mentioned to Marge and Bob, in terms of behavioral finance, they actually had a “normal” family! While we haven’t written the book on “Teenage Financial Education”, we certainly have personalized it, and have seven ideas Marge and Bob might consider for financial education homeschooling.

1. Take your teenager to the bank with you.

Introduce them to the bank manager and teller. Explain the process of deposits, withdrawals, writing checks, debit and credit cards.

2. Teach accountability. 

Help your teenagers learn to count change, check correctness of receipts, and prior to purchasing, understanding return policies.

3. Demonstrate how money can grow.

Even small amounts of money at low interest can compound meaningfully over a period of time.  Start with the “Rule of 72”, i.e. to find the number of years required to double your money at a given interest rate, divide the interest rate by 72.  For example, if you want to know how long it will take to double your money at a 4% interest rate, 72 by 4 and get 18 years!

4. Explain how debt can grow.

Debt can be insidious! Those of us old enough can remember our grandparents from the Recession telling us, “Don’t spend more than you have” and “Debt is bad.” Teach your teenagers to take out debt only on an asset that grows in value. Debt on a personal home can be acceptable, but debt on a new car, not so much! Teach how credit agencies (like Experian, TransUnion, etc.) track our debt paying record, and how that influences the interest rates we pay in the future, or even our ability to borrow.  Discuss your own credit score.

5. Show your children how to budget.

Teach terms like “income” and “expenses”.  Should your teenager be so fortunate to have a job, or an allowance, ask them to write down the amount they earn in a month as “income”.  Then, ask them to list everything they spend money on (e.g., clothes, snacks, school supplies, or video games) as “expenses”.  Help them learn how to keep their expenses at 90% of their income, so that they may start saving 10% while they are so young. Show them your paystub and explain the impact of various taxes on your income, and why there is a significant difference between “gross” and “net” income.

6. Take your teenager with you to your investment advisor.

Ask your Certified Financial Planner ® to show examples of the financial security that can be obtained by setting realistic goals and achieving them. Discuss a few of the investment vehicles available like stocks, bonds, mutual funds and real estate. Explain how these investment vehicles work, especially compared to a bank checking account, and explain why determining “risk” and “liquidity” levels is important.

7. Introduce your child to Junior Achievement.

No education is as effective as practical hands-on experience. Search for your local Junior Achievement program (juniorachievement.org/web/ja-usa/near-you), which provides financial education to our youth, and in many cases gives them exposure to the responsibility of running your own business.

Plant the seed of financial education early in your kids.  Discuss your own financial successes and failures. Why have the talk now? These are the kids who will be taking care of YOU some day!

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

This information is not intended to be a substitute for specific individualized tax advice.  We suggest that you discuss your specific tax issues with a qualified tax advisor.

Allen Ostrofe, MBA, CFP®, is President Emeritus of Ostrofe Financial Consultants, Inc., with clients in 32 states and is a registered Representative with, and Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through Ostrofe Financial Consultants, Inc., a Registered Investment Advisor and separate entity from LPL Financial. For questions or suggestions, visit ostrofefinancial.com. Branch address: 420 Sierra College Drive, Suite 200, Grass Valley.

Managing Your Taxable Investments

By Frederick “Rick” Fisher, MS, CFP®, CA Insurance Lic#OC90003

First published in The Union | Download the PDF

As a full-service financial planning firm, we address many issues regarding our clients’ finances. For example, over the years, we have advised many clients on how best to manage the tax ramifications of repositioning a taxable portfolio. Unlike changes in qualified retirement plans and IRAs, recommending changes in taxable accounts can be complicated when significant gains and/or losses are involved. 

Investors need to weigh the costs and benefits of the transaction. When a gain is involved, the main benefit is realization of the gain and possible protection of that gain, with the ability to reinvest or spend some of the money that is freed up by the sale. The cost, however, is the taxes that will need to be paid on that gain. The good news is that the tax is based on the gain on the sale and not on the total proceeds. In addition, the rate on capital gains is generally lower than the rate on other types of income, such as salary which is taxed at ordinary taxes rates. 

To illustrate, we will take the hypothetical case of George and Gina Stewart. They are in their early 60s and in the final push for retirement. George currently has stock from his previous employer that he obtained through options that were granted him. He was able to buy 5000 shares of stock at $5 per share and now, 10 years later, they are worth $80 per share.  Up until now, the Stewarts had resisted selling any stock because they were both still working, did not need the income, and wanted to defer paying taxes on any gains till they needed the money during retirement. Now that retirement was nearing, they wanted to come up with a plan to turn those appreciated shares into cash while minimizing the tax ramifications. 

Our first step was to calculate what the gain would be if stock were sold today. Currently, that would be $75 per share of stock sold.

Second, we charted out cash flow needs over the next 5 years. When would they would be eligible for Social Security and other pensions? The issue now was when to sell. If we sold all today, we would have an enormous gain of $375k and a potential tax bill of $75k. However, the Stewarts would still net $325k ($400k-$75k), a nice return on a $25k investment. The couple still liked the stock and saw no need to sell it all now, but we were not guaranteed that the stock would continue to grow and worried about the stock falling sometime within the next 5 years.

Upon review of their other holdings, we noticed that some smaller positons had losses. Since you can offset gains with losses, we looked at possibly selling just enough shares to take advantage of the losses and minimize the capital gains taxes. We also discussed putting upper and lower limits on the stock price where we would sell some to lock in gains and minimize losses. 

In the end, we came up with a plan to trim the stock over the next 5 years, which would give the Stewarts the cash they need during retirement and minimize the tax effects of the sale. 

When it comes to investing, once must always consider taxes when evaluating a taxable portfolio and come up with a strategy to mitigate them. Protecting gains by selling high may leave you with more money than selling when the stock falls.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.  This information is not intended to be a substitute for specific individualized tax advice.  We suggest that you discuss your specific tax issues with a qualified tax advisor.

Frederick Fisher is a Registered Representative with, and Securities offered through LPL Financial, Member FINRA/SIPC.  Investment advice offered through Ostrofe Financial Consultants, Inc., a Registered Investment Advisor and separate entity from LPL Financial.  

For questions or suggestions, contact Frederick at (530) 273-4425, or frederick.fisher@lpl.com, or visit ostrofefinancial.com.  Branch address: 420 Sierra College Drive, Suite 200, Grass Valley.

Have You Checked Off These 7 Potential Tax Savings Ideas Before Year-End?

By Allen Ostrofe | Published in The Union | Download the PDF

Elizabeth and Mark recently called from Los Gatos, California, and had left a voicemail that had a tone of anxiety. The year had gone by so quickly they weren’t certain whether their year-end financial and tax planning was adequate. Elizabeth is self-employed as an independent contractor, and Mark is employed as a software engineer in Silicon Valley. Their earnings place them squarely in one of the higher tax brackets. They called wondering what tools are still available to use before December 31 of this year to save federal and/or state taxes. I suggested they consider the following seven ideas—some of these may apply to you, as well.

1. Charitable donations. Mark and Elizabeth need to focus more on available write-offs. They could check that they can still itemize under the new tax laws. Charitable non-profit organizations will gladly take their in-kind donations or cash before year-end. They need to make certain that they receive and retain detailed receipts, even photos, of goods they have donated.  Make certain that the organization is a qualified 501(c)(3) non-profit. For larger items such as income-producing assets or parcels of land, they should consider a charitable remainder trust or a conservation easement with the aid of their Certified Financial Planner (CFP®) and estate planning attorney.

2. Quarterly estimates. Nothing is more frustrating than to have major financial surprises next March or April. Mark and Elizabeth should provide year-to-date income information to their tax preparer to confirm they are current with their quarterly estimated payments. In some cases, their remaining estimated payments (both federal and state) may be able to be reduced based upon this year’s updated income and expense information.

3. Retirement plan contributions. Mark, being an employee, should check with his CFP® to see whether he might qualify to max out his contributions to his 401(k), through salary deferrals, before year-end. For Elizabeth, being self-employed, it is not too late to establish a SEP IRA retirement plan. Both Mark and Elizabeth could potentially reduce their taxable income dollar-for-dollar with any contributions made before December 31. Elizabeth can even make contributions to her SEP IRA up until they file their tax return.  They should also check with their CFP® or tax preparer about whether they can additionally make a tax-deductible IRA contribution or even Roth IRA contribution.

4. Get your personal finances organized now. Now is the best time for Mark and Elizabeth to start collecting all of their tax-related paperwork such as income-to-date, expenses, and donations. They should make their tax preparer aware of any financial changes they have had in comparison to tax year 2018. If they are so inclined, they should create a spreadsheet to track tax-relevant data. This helps in avoiding giving their tax preparer “a box of paperwork” in March or April. The more streamlined they keep their paperwork, the lower their tax preparation fee will likely be.

5. Organize your business finances now. For Elizabeth, the business owner: she should consider using, or updating, a spreadsheet or software such as Quickbooks. Make your tax preparer aware of your year-to-date gross income, capital expenses, and equipment purchases, especially where there have been significant changes from the previous year.  Have there been any changes in your business status, e.g., changing from sole proprietor to a corporation?

6. Check your tax withholdings. For Mark, who is an employee: he should check and report to their tax preparer all of his year-to-date federal and state tax withholdings to avoid potential unwanted surprises next March or April.  This could potentially provide the tax preparer enough time to make changes in withholding prior to year-end.

7. Investment gains and losses.  Working with their CFP®, Mark and Elizabeth can take advantage of any losses that are currently unrealized within their non-retirement plan investment accounts.  Realized capital losses can be used to offset any capital gains as well as up to $3,000 of ordinary income.  Reviewing expected year-end capital gains distributions from mutual funds and ETF’s is another important step for Mark and Elizabeth to pursue their goal of no unwanted tax surprises.

If you feel that the tax year 2019 has crept up on you too quickly, and you feel uncertain or frustrated, take heart! This is a great time of year, before the holidays, to get your financial life under control, and aim to save paying unnecessary taxes to boot!

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The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

This information is not intended to be a substitute for specific individualized tax advice.  We suggest that you discuss your specific tax issues with a qualified tax advisor.

Allen Ostrofe, MBA, CFP®, is President Emeritus of Ostrofe Financial Consultants, Inc., with clients in 32 states and is a registered Representative with, and Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through Ostrofe Financial Consultants, Inc., a Registered Investment Advisor and separate entity from LPL Financial. For questions or suggestions, visit ostrofefinancial.com. Branch address: 420 Sierra College Drive, Suite 200, Grass Valley.

Roth IRA or Traditional IRA: Which is Better?

By Frederick “Rick” Fisher, MS, CFP®

Download the PDF or read this article on The Union

Over the years, we have had many clients ask, “Which should I invest in, a Roth IRA or traditional IRA?” They both are excellent retirement vehicles and generally can be invested in almost any asset. To illustrate the differences and determine which one is more appropriate, we will take the case of hypothetical clients, Jim & Sally Jones, and Roger Stevens.  

Jim and Sally are a young couple starting out. They want to get an early start on retirement savings. Neither of their employers offer a retirement plan, so both are eligible for the tax deduction from a traditional IRA. 

In order to determine which IRA is better for them, we needed to know their income and tax bracket. Since they are just starting out, their salaries are relatively low, and taxes are of secondary concern. In their case, a Roth IRA may be the better way to go, even though a Roth IRA contribution is not tax-deductible, while a traditional IRA is tax-deductible. The major benefit of a Roth IRA, however, is that under current law you are not taxed on distributions in retirement. Therefore, when they retire in 30 years, they will be able to start drawing on this account without an effect on their income tax. Assuming that income taxes will increase over time and that their income will be higher at retirement, this may be a significant benefit. 

 While the traditional IRA and Roth IRA both grow tax deferred, the main difference between the two is that you get the tax benefit upon contribution for the traditional IRA, and upon distribution for the Roth IRA.  

Also, the contribution limits are the same. For 2019, the max you can contribute is $6,000 for those under 50 years old and $7,000 if you are 50 or over. There are income limits on Roth IRA contributions.  For single filers the income limit is $137k Modified Adjusted Gross Income (MAGI), and for joint filers that increases to $203k. 

For the Jones, this was not a concern. For Roger Stevens, it was. 

Roger is 42 and investing in a new business that expects to make him between $120k and $150k this year. He likes the idea of tax-free income, because he has significant money in a 401(k), which like traditional IRAs, will be taxed upon distribution. He would like to have some flexibility regarding the tax treatment of retirement income.  

We advised him to wait to determine his taxable income for this year and see if he qualifies for the Roth IRA.  If not, he could still add to his traditional IRA, along with other plan options that are available.  Since both plans allow prior year contributions up to April 15 of the following year, that buys Roger some time to make a decision. 

Another advantage of the Roth IRA that both the Jones and Roger liked was that they are not forced to take money from the Roth IRA at 70½. They are forced, however, to take from a traditional IRA and most other retirement plans.  

With this information, the Jones started Roth IRAs for themselves. Roger decided to wait to see where his MAGI for 2019 will be. If possible, he would then open a Roth IRA. If not, he would add to his existing traditional IRA. 

Should you want advice on how to best allocate your tax advantaged retirement dollars, call our office for a complementary review.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.  The Roth IRA offers tax deferral on any earnings in the account. Withdrawals from the account may be tax free, as long as they are considered qualified. Limitations and restrictions may apply. Withdrawals prior to age 59½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax.  Future tax laws can change at any time and may impact the benefits of Roth IRAs.  Their tax treatment may change. Contributions to a traditional IRA may be tax deductible in the contribution year, with current income tax due at withdrawal. Withdrawals prior to age 59 ½ may result in a 10% IRS penalty tax in addition to current income tax.  This is a hypothetical situation based on real life examples.  Names and circumstances have been changed.  To determine which investments or strategies may be appropriate for you, consult your financial advisor prior to investing.

Frederick Fisher is a Registered Representative with, and Securities offered through LPL Financial, Member FINRA/SIPC.  Investment advice offered through Ostrofe Financial Consultants, Inc., a Registered Investment Advisor and separate entity from LPL Financial.   

For questions or suggestions, contact Frederick at (530) 273-4425, or frederick.fisher@lpl.com, or visit ostrofefinancial.com.  Branch address: 420 Sierra College Drive, Suite 200, Grass Valley.

Tax Changes for 2018—The Good, Bad, and Ugly

By Frederick “Rick” Fisher, MS, CFP®

Download the PDF or read it on The Union

With the end of the year quickly approaching and a number of new tax changes coming into effect in January, now is a good time for some year-end tax planning.  

The good news is that if you make $150k or less, your taxes most likely will go down, primarily due to the standard deduction rising from $12k-$15k (depending on age) to $24k-27k. The bad news is that some widely-used miscellaneous deductions are no longer allowed: these include such items as tax preparation fees, non-reimbursed employee expenses, union dues, and investment expenses.  

Depending on how you have used deductions in the past, this could be a saving or an increase in your tax liability. For high-income earners and those who live in expensive neighborhoods, the ugly reality may be the limiting of property tax and CA state income tax deductions. Last year, those deductions were unlimited, but for 2018 the maximum you can deduct for both items is only $10k. 

To illustrate, imagine a married couple that makes $200k and owns a home valued at $600k. In 2017, they may have paid and deducted $26k in combined property and CA state tax. In 2018, however, they would only be able to deduct $10k, which in reality is a tax increase of over $4k for 2018. 

In the 1960s, the alternative minimum tax was created to ensure that very high-income earners paid a minimum tax regardless of the deductions they took. Unfortunately, by the 1990s, the tax was starting to affect the middle class and increasing their effective tax rate. Congress has finally addressed this issue by limiting its effect on only those who have $1mm in income or higher.  There may be a benefit for those with children, as the child tax credit is increased from $1k-2k per child. In addition, the benefit will be available to more households as the income limit phase out increases from $75k-$110k to $200k-$400k.  

How the 2018 tax changes will affect you will vary on your income and employment status.  For most taxpayers, the effects will be positive. In addition to being aware of the changes is to take the time and do some year-end tax planning, including calculating your year-to-date income and making sure your withholding and/or quarterly tax payments are on target. Another planning task is to estimate any gains and losses taken through the year to see if the net is a gain or a loss, and how that may affect your income.  Lastly, check your charitable contributions for the year and make any adjustments based on your tax liability.  There are many 2018 tax changes that are unique in specific aspects; to see how you may be affected, contact your tax preparer or call our office at 530-273-4425 and take advantage of the beyond investments approach.

This information is not intended to be a substitute for specific individualized tax advice.  We suggest that you discuss your specific tax issues with a qualified tax advisor.

Frederick Fisher is a Registered Representative with, and Securities offered through LPL Financial, Member FINRA/SIPC.  Investment advice offered through Ostrofe Financial Consultants, Inc., a Registered Investment Advisor and separate entity from LPL Financial.   

For questions or suggestions, contact Frederick at (530) 273-4425, or frederick.fisher@lpl.com, or visit ostrofefinancial.com.  Branch address: 420 Sierra College Drive, Suite 200, Grass Valley.