IPOs

In this episode of Beyond Investments, Seth and Rick discuss the impacts of COVID-19 in Part 1, and start off Part 2 talking about IPOs.

The Benefits and Drawbacks of Annuities

By Frederick “Rick” Fisher, MS, CFP® | Download the PDF

The concept of an annuity has been around for centuries. Social Security is a form of an annuity. Most annuities are created and issued by insurance companies. These tax-deferred investments have grown increasingly complex over the last 30 years, and with that complexity sometimes comes misunderstanding. When used properly, annuities can be a way of creating a pension income for your life and potentially the life of your spouse. Proper due diligence is necessary since all annuities are not created equal.

To illustrate, let’s take the cases of two different investors. The first investor, Charlie, is 52 years old, and married with two children. He makes over $200k per year and maximizes his 401(k) contributions. He wants to save more for retirement in a tax efficient way. Since he does not have a traditional pension (except Social Security), he would like to create a larger cash flow in retirement that he and his wife cannot outlive. Having had to go through the market downturns of 2000 and 2008, he is concerned that another market downturn could happen when he is retired.

Charlie and his wife expect to live well into their eighties, so they are planning for a 20+ year retirement. In this case, a variable annuity may be a worthy option.  Contributions to annuities grow tax deferred. Money inside the policy could be invested in equity and bond funds, and for an extra cost, could provide a feature that would guarantee a minimum income for both of their lives. These are a few of the good features available within annuities. 

Some of the bad comes in the way of higher fees than other investment products and ordinary income tax treatment of gains when taking withdrawals, for both the account owner and future beneficiaries.

In Charlie’s case, the good outweighed the bad. After doing proper due diligence regarding company, product, features, and costs, he decided to invest in a variable annuity with a minimum income benefit rider that will pay him and his wife a set minimum monthly income for both of their lives.

Now let’s consider a second case: Michael, who is 82, is widowed and has one daughter. He is retired and lives on a modest income that consists of Social Security, a small company pension, and $240k Mutual Fund IRA from which he draws $1k a month. He owns his home, but still has a mortgage on it. He is finally comfortable, and his goal is to leave his modest estate to his only daughter.

In this case, an annuity would be of little value as he is no longer in accumulation mode and the goal for tax deferred investing is no longer a priority. Also, he has enough income from his social security and mutual fund, so a minimum income feature may not be worth the extra cost.

If you have been considering annuities or have one that you do not fully understand, call our office for a complimentary investment review, because part of being a successful investor starts by being well informed.

---

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.

The opinions voided in this material are for general information only and are not intended to provide specific advice of recommendations for any individual.  All investing involves risk including loss of principal.  No strategy assures success or protects against loss.  The case examples provided are hypothetical examples and are not representative of any specific situation.  Your results will vary.  The hypothetical rates of return used do not reflect the deduction of fees and charges inherent to investing.  Fixed and Variable annuities are suitable for long-term investing, such as retirement investing.  Gains from tax-deferred investments are taxable as ordinary income upon withdrawal.  Guarantees are based on the claims paying ability of the issuing company.  Withdrawals made prior to age 59-1/2 are subject to a 10% IRS penalty tax and surrender charges may apply.  Variable annuities are subject to market risk and may lose value.  Riders are additional guarantee options that are available to an annuity or life insurance contract holder.  While some riders are part of an existing contract, many others may carry additional fees, charges and restrictions, and the policy holder should review their contract carefully before purchasing.  Guarantees are based on the claims paying ability of the issuing insurance company.

Beyond Investments (with Rick Fisher)

Enjoy this new episode of Beyond Investments with Seth Leishman and Rick Fisher!

1. All performance referenced is historical and is no guarantee of future results. All indices are
unmanaged and may not be invested into directly.
2. All investing involves risk including loss of principal. No strategy assures success or protects against
loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified
portfolio. Diversification does not protect against market risk.
3. The economic forecasts set forth in this material may not develop as predicted and there can be no
guarantee that strategies promoted will be successful.

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!

---

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.

Year End Tax and Investment Planning Can Help You Avoid Tax Surprises and Save You Money

By Frederick “Rick” A. Fisher, MS, CFP®

This article was originally published in The Union on November 19, 2017. Click to view the PDF.

As the holiday season approaches, many of us are planning for all the events that the season brings. This is always a very busy for all of us. In the midst of it all we often do not set aside time for one of the most important tasks of the year. One that if we made a higher priority, could potentially save us hundreds if not thousands of dollars each and every year. What I am referring to is year end tax and investment planning! Now is the time we should be taking a look at where we are year to date in our investment and tax goals.  

The items we need to check on are many, but I will focus on three: Retirement Plan Contributions, Charitable Deductions and Payroll Withholding Options. 

To illustrate, we will take the hypothetical case of the Smiths. Greg is a self-employed consultant, and his wife Jan is a nurse at the local hospital. Greg and Jan each make around $80k per year. They are both 52 years old, want to minimize their tax liability and maximize their retirement funding. 

Greg currently has as SEP IRA that he has funded for many years. However, some years he has not had the cash necessary to fully fund his SEP. Since the limits to fund the SEP are based on his self-employed income, which fluctuates year to year, the amount changes year to year. This year, he decided to track his income each month and then save 20% of that number, put it in savings so he would have enough to fully fund this year and subsequent years till retirement. 

In order to prepare for their year-end tax planning meeting with their CPA, they gathered information on year to date retirement plan funding and reviewed what they had given so far to charity. Greg had invested $15k in his SEP so far, and has another $5k in savings that is earmarked for additional investment if possible. Jan has been deferring 5% of her income into the hospital’s 401k in order to receive the full match of 5%. They have a goal of contributing 5-10% of their take home to a list of local charities. Upon review, they had to date donated $3k in cash and approximately $1k in furniture, clothing and books to a local Thrift Store. That calculates to 4%, so they made a list of donations they planned to make before the year end. Finally, Jan reviewed her latest pay stub, to see if her YTD withholding was just right per income projection. Their goal was to have the withholding cover her income, and to avoid having the government holding her money for the year. They reviewed these items with their tax professional and left the meeting confident that they were on track for the year and that they would not have any tax surprises come April. If you are not certain of where you stand regarding your financial and tax goals, contact your financial professionals for a year end planning review.

Frederick Fisher is a Certified Financial Planning Practitioner, and Insurance Agent with Ostrofe Financial Consultants, Inc. managing over $208 million in assets, with clients in 29 states.  Advisory services provided by Ostrofe Financial Consultants, Inc., a registered investment advisor.  Separate advisory and securities services may be provided by National Planning Corporation (NPC), Member FINRA/SIPC, and a S.E.C registered investment advisor.  Ostrofe Financial Consultants, Inc. and NPC are independent and unrelated companies.  Please consult with your representative to confirm on which company’s behalf services are being provided.  For questions or suggestions, contact Rick Fisher at (530) 273-4425, or rick.fisher@natplan.com, or visit ostrofefinancial.com.  Branch address: 565 Brunswick Road, Ste. 15, Grass Valley.

This item is historical and based on information that was current at the time of initial print.  It contains information that has changed.  Staff and business names may have changed.

International Investing - with Nathan Leishman

In this episode of Beyond Investments, Seth Leishman talked with Nathan Leishman about his experiences with international investing.