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Why Choose American National For Life Insurance Needs?

6/30/2019

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Below is a marketing flyer from American National that introduces many benefits of choosing American National for your life insurance needs - accelerated underwriting and 3 free living benefits riders are very attractive and unique among all life insurance carriers:
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Investment Strategies Based On Your Beliefs

6/29/2019

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Investment decisions are personal decisions.  Depending on your beliefs, your investment strategies could be different.  Below are some popular investment strategies based on your beliefs -
  • If you believe the stock market is heading to the moon!  You should invest in broad=based index funds, such as Vanguard Total Stock Market Index Fund (VTSMX) or SPDR S&P 500 ETF (SPY).
  • If you believe the stock market is in big trouble!  You should invest in Gold, Cash, or government bonds.
  • If you believe renewable energy is gaining momentum!  You should consider Windmill makers such as GE (a leading supplier of wind turbines) or VWS (the largest windmill manufacturer in the world).
  • If you believe demand will grow for portable power.  You should consider Lithium mines by investing in Global X Lithium & Battery Tech ETF (LIT).
  • If you believe the future of manufacturing is robots.  You should consider robot makers such as iShares Robotics and Artificial Intelligence ETF (IRBO) or Robo Global Robotics & Automation Index ETF (ROBO).
  • If you believe in the future we will be the robots.  You should consider implant makers such as United Therapeutics (UTHR), 3D Systems (DDD), Stryker Corporation (SYK), Wright Medical Group (WMGI), Edwards Lifesciences (EW), or Abbott Lab (ABT).
  • If you believe cash will disappear.  You should consider Visa (V), Mastercard (MA), and American Express (AXP).
  • If you believe border security is important.  You should consider Eagle Materials (EXP) or Cemex (CX).
  • If you believe half of America will have diabetes someday.  You should consider the Obesity ETF (SLIM).
  • If you believe someday people will routinely live to age 120.  You should consider retirement housing such as the Janus Henderson Long-Term Care ETF (OLD) or Global X's Longevity Thematic ETF (LNGR).
  • If you believe super viruses pose a threat.  You should consider biotech firms such as Merck (MRK) or iShares Nasdaq Biotechnology ETF (IBB).
  • If you believe the world war III is inevitable.  You should consider medical treatment such as Johnson & Johnson (JNJ), Zimmer Biomet (ZBH), or Smith & Nephew (SNN).
  • If you believe the world war III will be online.  You should consider cybersecurity ETFs such as HACK or CIBR.
  • If you believe we will travel the world more often.  You should consider cruise lines, hotels, such as Royal Caribbean (CRL), Carnival (CCL), and Norwegian (NCLH), or airlines such as UAL, AAL, and LUV, or hotels such as MAR, HLT, and H.
  • If you believe outer space travel will be next.  You should consider Boeing (BA) or DuPont (DWDP).
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3 Steps To Get Into the Financial Planning Industry

6/28/2019

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Q. How to get into the financial planning industry on a part time basis?

A.
You can start as a financial planner on a part time basis, but don't expect to make anything big at all for some years.  Her is a typical path that might work -

1. Study for a CFP board certification
If you do this on a part time basis, you probably need 18 months and spend non-trivial amount of money to get your CFP certification.  This is a must to start with.

2. Pass the Series 65 exam
Most states will accept the CFP marks in lieu of the Series 65 exam, but if you just start out, you won't have your CFP mark because you couldn't meet the 3-year experience requirement, so just spend a few weeks or months to study and pass the Series 65 exam.

3. Search for a full time position, or start your own part time firm
You can start your own firm by registering it with the state and start from scratch your own RIA firm.  The first year cost should be less than $10,000, but don't expect any income yet, because while the cost barrier is low, advising people about their life savings is a sacred duty and education and experience are important to gain people's trust and do it well. 

So a more realistic way is to start full time at another firm, most likely start from an entry level job, and prepare for a pay cut if you current work. 
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3 Charts That Keep You In Perspective In Volatile Market Times

6/27/2019

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If you are worried about the volatility of stock market, the following 3 charts will help you keep perspective -

1. Volatility is a normal part of investing life
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2. Trying to time market can cost you
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3. It pays to stay in the market during volatile times
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Medicare and Foreign Travel

6/26/2019

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Q. Does Medicare plan cover foreign travel?

A.
For retirees with Medicare plan and travel overseas, it should be noted that the Original Medicare and Medicare Advantage plans do not cover if you are outside the US.

If you want coverage, you need to consider a Medigap policy.  It's a supplemental insurance plan that's designed to cover gaps in coverage left by Medicare.  Unlike Medicare, Medigap is not a government-sponsored insurance program.  It’s sold through private insurance companies and you're responsible for purchasing the policy on your own.


What Medigap generally covers outside the US?
If you have Medigap Plan C, D, E, F, G, H, I, J, M, or N, your plan:
  • Covers foreign travel emergency care as long as it begins during the first 60 days of your trip and only if Medicare doesn't cover the care
  • Pays 80% of the billed charges for certain medically necessary emergency care outside the US after you meet a $250 deductible for the year
  • Limits lifetime foreign travel emergency coverage to $50,000
 For more information, visit the Medigap website.

6 questions to ask your health insurance company about foreign travel:
  1. Are emergency expenses abroad covered?
  2. Does coverage include returning to the United States for treatment if seriously ill?
  3. Are pre-existing conditions covered?
  4. Are pre-authorizations or second opinions required before emergency treatment can begin?
  5. Does the company pay foreign hospitals and foreign doctors directly?
  6. Does the company provide a 24-hour physician-backed support center?
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4-Step Process To Understand Why Whole Life Could Be An Effective Alternative To 529 Plan

6/25/2019

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80 percent of people pay for college with cash flow or drawing down an asset, however, there is an alternative to college savings that could make more sense.  Here are the 4 steps process:

Step 1: Collateralize assets by leverage compounding interest
You still have to save the money, but instead of giving all that money to the college, you can collateralize the assets. When you collateralize the assets, you can take advantage of the power of compounding interest.

Step 2: Calculate the Expected Family Contribution (EFC)
This is the amount of money the government says each family should be able to pay per year to educate one child (Assess 25 percent of family income and 6 percent of visible assets). 

Step 3: Identify how much you have to pay
This is where the EFC from the parents is added with any other source of income (student loans from need-based financial aid, grants, scholarships, etc.) to meet the expected tuition payments. 

Step 4: Find the best and most efficient strategy for college expenses and retirement
You can combine your savings goals into one - use retirement dollars to help pay for college, and use college dollars to help with our retirement.

The preferred tool?  Use a whole life insurance policy where loans can be collateralized from the policy to help pay for college, you can see how the numbers work with the policy’s loan summary. 

Quick Take: whole life benefits as a college planning tool
  • Death benefit coverage
  • Tax-free access to cash via policy loans while contract is in force
  • Not subject to market risk (unlike a 529 Plan)
  • No restrictions on any expense (529 Plan assets restrict to select college expenses)

If you are interested in using whole life as a 529 alternative, please contact us so we can run illustrations for you, and you can then decide if the numbers make sense for you or not.
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How To Maximize Tax-Free Income With A Single-Participant 401(K) Plan?

6/24/2019

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The article below is from an insurance carrier's pension department, it should be very interesting for people who runs his or her own single person business.

What is a Single-Participant 401(k) Plan?

A single-participant 401(k) plan is a 401(k) plan that is sponsored by an employer and has no other employees except the business owner.  Under such plans, the business owner wears two hats: his employee hat and his employer hat.  A single participant 401(k) plan is typically funded by a combination of employee salary deferral contributions (the “employee” part) and employer profit sharing contributions (the “employer” part).

Taxes, Taxes, Taxes
For years, the conventional wisdom has been that contributions to the plan should be made on a pre-tax basis to defer taxes to the participant’s retirement years when he is expected to be in a lower tax bracket.  Employee deferrals have usually been of the pre-tax variety and employer profit sharing contributions have usually been made on a tax-deductible basis.

Does conventional wisdom still hold true today?
For some single-participant 401(k) plan sponsors the answer very well may be no.

The reason for this is the effect that §199A of the Tax Cuts & Jobs Act of 2017 had on the taxation of small businesses such as sole proprietorships, partnerships, S-Corporations and LLCs.  For qualifying employers §199A reduces the top marginal tax rate on business income from 37% to 29.6%.  The top personal income tax rate remains at 37%.

Therefore, a business owner might ask himself the question, “Does it make sense for me to contribute to a plan and take a deduction at 29.6% when I might pay 37% on the money when I take it out of the plan down the road?”

The business owner has a point.  Fortunately, there is a way to provide him with tax-free income at retirement if he chooses to pay taxes on his current contributions instead of waiting to pay tax when he retires.  To do so we would follow a three-step process.

Three-Step Process to Maximize Tax Free Income In Retirement

Step One: 
Switch from making his salary deferrals on a traditional pre-tax basis to an after-tax Roth basis instead.  Everybody can make Roth salary deferral contributions if their 401(k) plan permits it.  For 2019, a participant may make up to $19,000 in Roth salary deferrals.  Participants age 50 or more may add on an extra $6,000 in Roth catch up contributions.

Roth contributions plus the investment earnings they generate can be withdrawn from the plan tax-free if the Roth deferrals are kept in the plan for the requisite minimum holding period.  In general, the required holding period is the later of:
• The fifth year following the year that the first Roth deferral contribution was made, or
• Attainment of age 59 ½

Step Two: 
Stop making profit sharing contributions to the plan and instead allow the business owner to make additional voluntary after-tax contributions to the plan.  For 2019, this can be as much as $37,000 if the maximum Roth salary deferral has been made.

Voluntary after-tax contributions have been around for a long time but have fallen out of use ever since they became subject to discrimination testing under Code §401(m).  As very few, if any, non-highly compensated employees will ever make voluntary after-tax contributions plans that allow them are quite likely to fail discrimination testing and require that voluntary after-tax contributions made by highly compensated employees be refunded.

Discrimination testing is not a concern in a single-participant plan because there are no non-highly paid employees to discriminate against.  Such plans can accept voluntary after-tax contributions without any worries.

Discrimination testing also does not apply to plans where the only participants are the owner and his spouse, his children or his parents.  It also does not apply if the only participants are co-owners of the business, such as a partnership, as long as each participant owns more than 5% of the business.  Testing also does not apply to plans where every participant is a highly compensated employee, i.e. everyone has earnings in excess of $125,000 for 2019.

Add non-highly compensated employees into the mix, even one, and voluntary after-tax contributions will probably be disallowed because of discrimination testing.

Step Three: 
Have the business owner elect to make an in-plan Roth conversion of his voluntary after-tax contributions right after they have been made.  Since the contributions were made on an after-tax basis there will be no tax consequences from making the Roth conversion election.

The Results
The results can be very interesting.  Here is a chart of potential tax savings assuming that the maximum contribution rate remains unchanged at 2019 levels and the contributions generate an investment return of 5% compounded annually:

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For most participants except those nearing retirement Roth salary deferral contributions and Roth conversions of voluntary after-tax contributions can be an attractive option.
If you found the above piece interesting, we can help you set up retirement plans for you, please contact us here.
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If I Used Marijuana, Will My Life Insurance Application Be Impacted?

6/23/2019

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Q. If I used marijuana in the past, will it affect my life insurance application?

A.
Below is a view shared by insurance companies' underwriters, it should give people who have the same question above a clear answer -


Marijuana is consumed in a variety of ways. Most commonly, it is smoked; however, it can also be consumed orally through foods, capsules, and teas. THC (tetrahydrocannabinol) is the primary psychoactive chemical found in marijuana (in other words, this is the component within cannabis that causes changes in brain function, mood, and perception). In recent years, the levels of THC have increased considerably when compared to marijuana smoked just 20 years ago. Thus, today’s marijuana is much more potent than in the past.

THC is accumulated in the fatty tissues and eventually eliminated over a period of days (and sometimes weeks or longer). Therefore, a positive marijuana test on an insurance lab does not necessarily mean that the proposed insured had recently used pot. It is very possible that the proposed insured used marijuana days or weeks prior.

As the legal environment and cultural norms have changed, the use of marijuana has increased in recent years. It is estimated that almost 15% of U.S. adults have used marijuana in the past year. One recent comprehensive national survey found that 38% of college students have used marijuana at least one time in the last year and 21% report using in the last month. These numbers are even higher in people of the same age group not attending college. Increased use of cannabis isn’t isolated to young people.  A 2017 review found a significant recent increase in cannabis use among U.S. adults age 50 and over.

The Good News
For adults using marijuana on a recreational/occasional basis, there is evidence that there is not much overall impact on health, except with poorer periodontal health.  For those using marijuana for control of pain, there are indications that this may reduce the use of more dangerous prescription narcotic medication. Some research has concluded that there is reduced opioid-related accidental deaths when marijuana is legalized.

The Bad News
As Dr. Cliff Titcomb ( Medical Director at Hannover Re) has stated, “…it is important to remember that the mortality risk is not from the drug {marijuana} itself, but rather the company it keeps.”
  • Marijuana users are more likely to use other drugs.
  • Marijuana users are more likely to smoke tobacco.
  • Marijuana users are found to drink more alcohol on average.
  • Medicinal marijuana use is common in those who rate their health as poor and there is a high incidence of disability among people using for medicinal purposes.
  • There is some evidence that chronic marijuana use may unveil various psychiatric issues in people who are predisposed to conditions such as schizophrenia and other psychoses.
  • Negative impacts of marijuana are particularly worse when used in adolescence. Developing brains seem to be vulnerable to the effects of cannabis. This results in increased rates of anxiety and depressive disorders and reduced attention span.
  • The effects on legalization may also increase the risk of motor vehicle accidents. In Hawaii, for example, motor vehicle fatalities involving individuals testing positive for THC has tripled since legalization. In Colorado, there have been similar findings.

​The Bottom Line

As with so many other underwriting issues, context is key. The underwriter will be looking at things such as frequency of use, medicinal vs. recreational, past or current abuse of other substances, and other medical issues. For occasional/recreational use only with no other concerns, standard rates are common. More frequent use can result in a substandard rating. Preferred rates, while not as common as standard, is the best-case scenario. A typical preferred risk will have these characteristics:
  • Over age 25
  • Full disclosure
  • Use of 2 times per month or less
  • No history of substance abuse of any kind
  • No criminal history
  • Blood Alcohol on insurance lab 0%
  • Full Drug panel (other than +Marijuana) must be negative
  • No more than 2 moving violations in 5 years AND no history EVER of DWI/DUI
  • No history of treatment for chronic pain or psychiatric issues
  • Stable employment
  • Otherwise qualifies for preferred rates
Non-nicotine user rates will be applied if there has been no nicotine use in the past 12 months (standard) or 36 months (preferred) and with a negative urine specimen.

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Tax-wise About Investment - Part 7: Tax on MUNIs, MLPs and REITs

6/22/2019

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We discussed tax on gold investments here, now final part of tax-wise about investment.

Part 7, Tax on MUNIs, MLPs, and REITs
  • Corporate bond income is taxed at ordinary income rates
  • Treasury bond interest is subject to Federal tax, but not state taxes.
  • Municipal bonds are free from Federal tax.  If you live in the state that issued the bond, the interest you receive is exempt from Federal, State, adn Local taxes.
  • Muni funds that buy bonds from all states - your fund company will let you know what percentage of your interest is free from state and local taxes.
  • Dividends paid by REITs and MLPs are taxed at ordinary income tax rates (there is NO qualified dividend from REITS or MLPs).  Under the new tax law, investor can deduct 20% of their REIT and MLP income as a qualified business income deduction.  To qualify for the full deduction, among other requirements you need taxable income below $315,000 for joint return or $157,000 for other taxpayers.  You can deduct even you don't itemize.
  • Not all MLP payouts are taxable - if the payout is a return of capital which you won't owe tax on it.  Your MLP's K1 tax form should tell you how much of your MLP's payout is taxable and what tax treatment it ultimately gets.  
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Tax-wise About Investment - Part 6: Tax on Gold Investments

6/21/2019

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We discussed taxes on futures and options here.  Now we will discuss tax on gold investment.

Part 6. Tax on Gold Investments
​The IRS treats gold bullion (and silver, platinum and palladium) as a collectible - the same as baseball cards - rather than as an investment, such as stocks or bonds.  Long term capital gains are taxed at 28%.  If you invest in an ETF that buys and sells precious metals, your gains will also be taxed at the 28% rate.  

Funds and ETFs that invest in gold mining stocks, however, are treated the same as any stock funds.

In our last part, we will discuss tax on MUNIs, MLPs, and REITs.
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Tax-wise About Investment - Part 5: Tax on Futures and Options

6/20/2019

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In last blogpost, we discussed which method you could consider: LIFO or FIFO, now part 5.

Part 5. Tax on Futures and Options
Profits from Futures trading are generally taxed as 60% long term capital gains and 40% short term capital gains, no matter how long you have held the contract.

Tax rules on Options trading are the same as on stocks.  Profits on Options held less than 1 year are typically taxed as short term capital gains (the same as ordinary income) and losses are short term capital losses.

Income you gained from selling an option to another investor is taxed as short term gain.

Next, we will discuss tax on gold investment.
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Tax-wise About Investment - Part 4: LIFO vs FIFO

6/19/2019

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In last blogpost, we discuss cost basis, now will discuss which method do you use when you sell a security - LIFO vs FIFO.

Part 4. Use LIFO or FIFO?
You can sell shares in the order you bought them - first in first out (FIFO), this increases the odds you will pay the lower long term capital gain rate, but you may have reasons to sell shares you bought most recently - last in first out (LIFO), for example, after you bought the stock, it tanked, allowing you to take a capital loss.

You can also specify certain shares to sell, or just assume you will use the average cost per share when figuring your basis.  If you use the average cost per share to account for part of a position that you have sold, you need to use the same method when you sell the rest.

IRS usually assumes you use FIFO method, if you use a different method, you must let your broker know in writing and keep a record of that order in case the IRS asks about it.

Next, part 5 - tax on futures and options.



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Tax-wise About Investment - Part 3: Cost Basis Calculation

6/18/2019

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In part 2 we discussed tax on stock dividends.  Now part 3.

Part 3. Calculation of Cost Basis
You might think it's easy to figure out cost basis - your purchase price.  However, it is important to adjust your cost basis for reinvested dividends, because you will pay tax on dividends that you reinvest as though you have pocketed the cash.  But you won't be taxed twice - once when the dividend is paid to you and again when you sell - because your cost basis is adjusted upward by the amount of the dividend.

Investment expenses such as commissions will also increase your cost basis and reduce your taxes.  

Brokerage firms usually keep records of all purchases and sales of securities for at least 6 years.

Next, we will discuss LIFO vs FIFO.
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Tax-wise About Investment - Part 2: Tax on Dividends

6/17/2019

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We discussed long term vs short term capital gains here.  Now part 2 of tax-wise in investment.

Part 2. Tax on Stock Dividends
First, domestic qualified stock dividends are taxed at capital gain rates.  How to determine if a dividend is qualified or not?  If you have held your stock for more than 60 days within the window that extends from 60 days prior to 60 days after the ex-dividend date (the date the company declares a dividend payment).

Non-qualified dividends are taxed at your ordinary income rate.

Foreign stock dividends: many countries withhold taxes on dividends paid to foreigners.  If you invest in an international fund, an international stocks, or an ADR, you will see box 7 of your 1099-DIV form will include an amount indicating the foreign taxes paid.  The Foreign Tax Credit lets you recoup some or all of these taxes.  Each year, you will have the choice of taking a deduction for foreign taxes, which reduces your taxable income, or a credit, which reduces your taxes dollar for dollar.  It is generally better to take the credit.  You can use Form 1116 to figure the tax or credit, and enter it on Schedule 3 of Form 1040.

Next, we will discuss cost basis.
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Tax-wise About Investment - Part 1: Long Term vs Short Term Gains

6/16/2019

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We will use several blogposts to discuss tax in investment.

Part 1. Long Term Gain vs. Short Term Gain
When you realize a gain on investment (not a tax-favored retirement account), you will have to pay tax on the gain, how much will depend on your income and how long you held the investment.

If you bought and sold within 12 months, you have a short term capital gain, which will be taxed at your maximum income tax rate.  If you are in top 40.8% tax bracket, which incomes a 3.8% Medicare surtax, that will be the tax rate on your gain!

If you wait more than a full year between your purchase and sale, now you qualify for a more favorable long term capital tain rate, which is determined by your taxable income.  If you are a high earner with modified adjusted gross income that puts you in the top 23.8% capital gain bracket (includes a 3.8% Medical surtax), that will be the rate you will pay!

At tax time, you match up all of your long term gains against your long term losses, and your short term gains against your short term losses.  Then you match any remaining gains against remaining losses to figure your capital gain tax.  If you have a net loss, you can deduct up to $3,000 worth from your income.  Losses greater than $3,000 can be carried over into the next tax year and future years, until they are used up.

In part 2, we will discuss qualified stock dividends and dividends from foreign stocks.
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10 Strategies for IRA Withdrawals In Order to Minimize Tax - Part C

6/15/2019

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We have discussed the previous 7 strategies here, now the last 3 strategies.

8. Roll money over to a Roth
There is no RMD requirement for Roth IRA, so any money you have rolled over from a traditional IRA to a Roth avoids future RMDs.  However, you will have to pay taxes on the rollover, and if you do it after age 70.5, you will have to take that year's RMD before rolling over the money.

9. Consider a QLAC
Money you invest in a deferred-income annuity known as a qualified longevity annuity contract and is removed from your RMD calculation.  You can invest up to $130K from your IRA in a QLAC (or up to 25% of the balance in all of your traditional IRAs, whichever is less) at any age (most people do this in their fifties or sixties).  You pick the age when you would like to start receiving annual lifetime income, usually in your seventies or later (no later than age 85).

10. Don't pay more in taxes than you have to
If all of your IRA contributions were made with pretax or tax-deductible money, your RMDs will be fully taxable.  But if you made any non-deductible contributions, a portion of each withdrawal will be tax-free.  Keep track of your tax basis on Form 8606 so you don't pay more in taxes than you owe.
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10 Strategies for IRA Withdrawals In Order to Minimize Tax - Part B

6/14/2019

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We introduced the first 3 strategies here, now the next 4 strategies below.

4. Understand how 401(k) rules are different
If you have several 401(k) accounts, you have to calculate and withdraw RMDs separately for each 401(k).  You even have to take RMDs from Roth 401(k), although those withdrawals are not taxable.  You can't take 401(k) account RMDs from your IRAs and vice versa.

If you are still working at 70.5, you may be able to delay taking your RMD from your current employer's 401(k) until April 1 of the year after you stop working (unless you own more than 5% of the company).  But you still have to take RMDs from traditional IRAs and former employer's 401(k)s.  If your current employer allows it, you may want to roll funds from other 401(k)s into your current plan and avoid taking RMDs on that money while you are still working.

5. Choose the right investments to withdraw
Some IRA or 401(k) administrators automatically withdraw RMDs proportionately from each of your investments, and they could sell stocks or funds at a loss to make your payment.  If you want to avoid that, you can usually elect to take a fixed percentage from each of your investments or have 100% taken from cash.

6. Automate your RMDs
If you want to simplify the process and not worrying about missing deadlines, most IRA administrators will let you automate your RMDs, you can sign up to have the money withdrawn every month or quarter, or by a certain date each year.

7. Donate to charity and get a tax break
After you turn 70.5, you can transfer up to $100K directly from your IRA to charity each year which counts toward your RMD but isn't included in your adjusted gross income.  This strategy could be helpful if you itemize your deductions and otherwise won't get a tax break for your charitable gifts.

Keep reading the next 3 strategies here.
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10 Strategies for IRA Withdrawals In Order to Minimize Tax - Part A

6/13/2019

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Q. I know it's required to take money out of retirement accounts once reaching 70.5, how to minimize the tax bite?

A.
The prospect of taking Required Minimum Distributions (RMD) and facing the tax bill can be daunting, here are 10 strategies you can use to minimize taxes, make the most of your investment and avoid costly mistakes.

1. Calculate the amount of your withdrawals
RMD is based on the balance of your accounts as of December 31 of the previous year, divided by a life expectancy factor based on your age.  Most people use the Uniform Lifetime Table (Table III) in Appendix B of IRS Publication 590-B.  Your IRA or 401(k) administrator can usually help with the calculations.

2. Time it right
You usually have to take your annual RMD by December 31, but you have until April 1 of the year after you turn 70.5 to take your first required withdrawal.  However, delaying that first withdrawal means you will have to take 2 RMDs in the second year which could push you into a higher tax bracket, making you subject to the Medicare high-income surcharge or cause more of your Social Security benefits to be taxable.

3. Pick the best accounts for RMD
You have to calculate the RMD from each of your traditional IRAs (not Roths), including rollover IRAs and any SEP or SIMPLE IRAs. But you can add the total required withdrawals from all of those IRAs and take the money from any one or more of the IRAs.

IRAs are owned individually, even if you are married and file a joint tax return, you and your spouse have to take your RMDs from your own accounts.

Please keep reading the next 4 strategies.
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5 Reasons You Should Go Indexing

6/12/2019

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Q. Why should I consider indexing in investment?

A. I can think of 5 reasons that show the power of indexing -


1. Proven Performance
Standard & Poor found that in the 15-year period through June 30, 2018, S&P 500 Index beats 92% of large-cap funds.  Morningstar found that Vanguard 500 Index has done better than the majority of funds in its category - large cap blend.

2. Tax Efficiency
Only a handful of companies in the S&P 500 change each year, so trading expenses and tax consequences are minimum.

3. Low Cost
Fidelity has a no-fee Zero Large Cap Index (FNILX) which is linked to Fidelity's own index of 504 stocks that are nearly the same as those in the S&P 500.  Vanguard charges just 0.04% for Vanguard S&P 500 (VOO) ETF.

4. Hard to Find Better Performing Funds
If you want to find a better performing actively managed fund, the odds are against you - A study by S&P found that "out of 500 domestic equity funds that were in the top quartile as of Sept 2016, only 7.1% managed to stay in the top quartile at the end of Sept 2018".

5. More Market Exposure
In addition to S&P 500, you can also buy Vanguard Total Stock Market Index (VTSAX) which reflects the performance of every exchange-listed U.S. stocks and charges 0.04%.  Fidelity Zero Total Market Index (FZROX) does the same and charges no expenses.
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4-Step Family Wealth Transfer Plan - Part D

6/11/2019

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We have discussed step 3 of family wealth transfer here, now final step.

Step 4. Follow Up On Your Plan
​
Once you have your plan in place, you should continue the vital discussions you've already started with your family members regarding the details of your plan.  Sharing the particulars of your plan is a highly personal decision.  But helping your loved ones better understand your intentions before any incapacitation or death is something to carefully consider.

Finally, review your plan as circumstances change.  As a general rule, you should have the estate planning documents reviewed every 3 to 5 years.  In addition, you should review your plan when major life events occur, such as marriage, the birth of a child, divorce, the receipt of an inheritance, or a death.

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4-Step Family Wealth Transfer Plan - Part C

6/10/2019

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We discussed step 2 here, now step 3 of family wealth transfer.

Step 3. Focus on Your Legal Documentations
Before you meet with an estate planning attorney, you will need to pull together key documents.
  • Start by getting copies of beneficiary designations for all your accounts, including insurance policies; annuities; and saving, brokerage, and retirement plan accounts.
  • Next, learn about the 2 common documents found in an estate plan:
  • A will is an essential legal document that sets forth your wishes regarding the distribution of your property and the care of any minor children when you die.
  • A trust is a more complex legal structure that contains a set of instructions on exactly how and when to pass assets to trust beneficiaries. Trusts are a tool that can allow you to control when and to whom your assets will be distributed. 
  • Then consider additional supporting documents intended to protect you and provide instructions in the event of your incapacity. Among them:
  • A power of attorney appoints an agent to act on your behalf regarding financial and other matters while you are alive.
  • A health care proxy names the agent who can make health care decisions for you if you are unable to communicate for yourself.
  • A HIPAA release informs doctors and other hospital staff of people who can visit you and the information they can receive if you are unable to state your wishes directly. Without a properly executed HIPAA release, your named agents may not have the ability to talk with your doctors or access your medical records.
  • An organ donation form enables you to state your desire to have all or part of your body donated for transplant or medical research.
  • A living will or medical directive outlines your wishes regarding life‐prolonging medical treatments, and may vary depending on your state of residence.
  • A final wishes letter of intent is not a legal document but can be a catchall for anything you want to document, including the type of service, burial, or cremation you want.
  • A letter of instruction usually contains the critical information your family will need in the event of your incapacitation or death, including a contact list of your advisers, a current inventory of your assets, a list of legal documents, and instructions on where to find important information.
  • Determine key roles. Choosing and documenting the appropriate people to fulfill the following key roles in your estate plan is a critical task for you and your family. It is also important to make sure the people you designate are comfortable taking on these roles and that you consider successors for each of them:
  • Personal representative/executor will work with your attorney—and potentially the court system—to ensure the collection and disposition of your assets to the appropriate people in accordance with your wishes.
  • Trustee is the individual or professional corporate trustee who will hold the trust assets on behalf of the trust beneficiaries. The trustee has the fiduciary obligation to make sure trust assets are properly invested and distributed according to the instructions in your trust.
  • Guardian is the individual who is legally responsible for the personal and property interests of your minor children. Note: The parties you designate to care for your children do not have to be the same parties who manage their assets.
  • Meet with your attorney. Typically, your first meeting offers the opportunity for the attorney to describe their estate planning process and review any documents you bring to the meeting. Your attorney should also discuss their fees, tell you how long it will take to draft your plan's documents, and answer any questions you or your family may have.
 
​
Once you have chosen an attorney, the process usually has 3 phases:
  • Draft and execute your documents: At this stage, generally your attorney will draft and review all your new estate planning documents with you and have you sign them. Depending on your state of residence, there may be specific requirements as to the form or content of these documents or the manner of execution. For example, some states require that signatures be witnessed or notarized if your family's needs or plans change, so you'll want to ensure that you can amend your documents.
  • Implement your estate plan: After you have signed your documents, your attorney can help you with the follow‐up steps required to complete your estate plan. These may involve retitling assets between you and your spouse, completing or amending beneficiary designations, and retitling assets in the name of a trust.
  • Store your documents in a safe place: You can either store your estate plan and other important documents in your attorney's office or select a fireproof place—such as a bank safe-deposit box—that someone close to you can access in an emergency.  You can also use a secure virtual safe such as Fidsafe.

Read step 4 here.
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4-Step Family Wealth Transfer Plan - Part B

6/9/2019

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We discussed step 1 of family wealth transfer here, now step 2.

Step 2. Identify Your Assets and Liabilities
​
When planning for your family's financial future, be comprehensive. Start out by creating a personal balance sheet.
  • Catalogue all your assets, their location, and their value: Financial accounts (including retirement accounts), share certificates or investments not located in financial accounts, real estate, business interests, safe-deposit boxes, tangible personal property, mineral rights, life insurance, mortgages or notes owed to you, and any other assets (trusts, investment interests, etc.).
  • List all your liabilities: Mortgages, secured debt (e.g., car loans) and unsecured debt (e.g., credit cards). Be sure to include shared obligations and those you have guaranteed, such as a student loan or mortgage for a child or grandchild.
  • Record ownership/titling for each asset and liability.
  • Review beneficiary designations for relevant assets to ensure they are consistent with your overall wishes and they coordinate with your other estate planning documents.

​We will discuss step 3 here.
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4-Step Family Wealth Transfer Plan - Part A

6/8/2019

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We will use 4 blogposts to discuss a 4-step family wealth transfer plan.

Step 1. Develop A Family Vision
  • Start by creating a family tree. The evaluation of wealth transfer objectives and of wealth transfer strategies will benefit from the involvement of an estate planning attorney. To best explore all the options for building your specific plan, your attorney will need to know all the players in your family—or families—and how they may factor into your intentions.
  • Understand your wealth transfer objectives. Consider whom you wish to receive a portion of your assets, and when. Then, put together a list of objectives, covering such topics as:
  • Wealth transfer: How can you help ensure that your assets will be transferred smoothly to your heirs? Beyond having a will and estate plan, you may want to set up trusts.
  • Health care: How do health care and/or long‐term care needs factor into your financial plan? Fidelity estimates that an average 65‐year‐old couple will spend $285,000 in retirement on health care costs.
  • Philanthropy: What causes are most important to you and your family? How do you want to support them?
  • Living expenses: Do you want to provide financial assistance to family members, such as your parents, children, or grandchildren, or to relatives who require special care?
  • Education: Do you want to contribute to your children's or grandchildren's education? Contributions to 529 college savings plans or direct tuition payments to an institution can lower your taxable estate.
  • Incapacitation: Whom do you want to make key decisions to help protect your family if you're unable to make your wishes known? One of 3 seniors dies with Alzheimer's disease or some other form of dementia.

We will discuss step 2 next.
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Why the 4% Withdrawal Rate Is Outdated?

6/7/2019

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Q. Is it still safe to use 4% withdrawal rate to take money out of my retirement portfolio?

A.
We will share a few reasons for people who think why the 4% rate is outdated, you can determine if they make sense or not by yourself.

What is 4% rule?
This rule states that a 65-year-old could withdraw 4% of their assets from their portfolio during the first year of retirement, grow those assets by the inflation rate in subsequent years, and have minimal probability of running out of money over the next 30 years.  The 4% rule may seem safe at a glance, but the complexities of retirement challenge the validity of this strategy.

Why 4% is outdated?
When the 4% rule was first introduced in the early 90s, the probability of running out of money was calculated using historical returns. When updated with new capital markets data, using a moderate risk portfolio, the 4% rule today is actually closer to 3.5% for current retirees and a 3.5% withdrawal rate yields only an 85% probability of success.  In other words, this withdrawal rate would fail 15 times out of 100. 

In addition, the 4% rule fails to address the following uncertainties imbedded in every retirement plan:
  1. Life expectancy: The 4% rule was developed based off of a 30-year period when in fact many retirees can expect a longer retirement—especially those who retire before age 65. Life expectancy is impossible to predict, but it's important to be realistic when planning.  An underestimated retirement duration increases longevity risk.
  2. Portfolio returns: The 4% rule is indifferent to the year-overyear change in portfolio value. If a retiree plans to start retirement spending USD 40,000 from a USD 1mn portfolio, and then the portfolio declines by 40%, they will be left with a portfolio value of USD 600,000. The retiree's USD 40,000 annual spend is now 6.67% of the portfolio. Consecutive annual declines in portfolio value, combined with increasing annual spending rates, result in a situation where the retiree's withdrawal rate is no longer viable .
  3. Expenditures: The 4% rule yields a constant (inflation-adjusted) spending rate; however, most retirees prefer tospend larger amounts earlier in retirement and less later on. Additionally, most investors' retirement expenses aren't the same every month. Large and lumpy expenses, such as healthcare and long-term care costs, can derail an otherwise sound plan —especially one that's funded by an unwavering income. 
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How to Choose the Right Medicare Supplement Plan?

6/6/2019

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Q. How to choose the right Medicare Supplement plan/

A.
We have introduced Medicare plan here. Now we will discuss how to choose the right Medicare Supplement plan.

Medicare Supplement plans (Medigap plans) pay out-of-pocket costs not covered by Medicare, it has 10 letter designations (A through D, F, G, and K through N).  All plans with the same letter have the same coverage, but prices can vary by company.  
  • Plan F has been the most popular.  It covers the Medicare Part A hospital deductible and co-payments, Part B deductible, and some emergency care outside of U.S.  Plan F will be discontinued for new Medicare enrollees in 2020.
  • Plan G provides the same coverage except for the $185 Plan B deductible.  
  • Plan N is the best if you don't anticipate many Doctors' visits as it usually has lower premiums in return for some cost sharing.

Most state insurance departments describe the types of medigap policies and list the premiums for plans in their area.  You can find your state's insurance department at www.NAIC.org.

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