More Related Content
June 2018 Newsletter
- 1. Cedar Point Financial Services LLC® Todd N. Robison, CLU President 10 Wright Street 2nd Floor Westport, CT 06880 203-222-4951 [email protected] www.cedarpointfinancial.com June 2018 Newsletter Marriage and Money: Taking a Team Approach to Retirement Managing Money When You Marry: Financial Tips for Newlyweds As a business owner, what should I know about using temporary workers? What is the employment situation report, and why is it important to investors? Cedar Point Monthly Newsletter Elegant solutions to complex financial issues Mid-Year Planning: Tax Changes to Factor In See disclaimer on final page Have questions? I can help. Email Me: [email protected] Visit My Website: www.cedarpointfinancial.com linkedin.com/in/toddrobison Services: Estate Planning Retirement Strategies Executive Benefits Group Benefits CA License #0B77420 The Tax Cuts and Jobs Act, passed in December of last year, fundamentally changes the federal tax landscape for both individuals and businesses. Many of the provisions in the legislation are permanent, others (including most of the tax cuts that apply to individuals) expire at the end of 2025. Here are some of the significant changes you should factor in to any mid-year tax planning. You should also consider reviewing your situation with a tax professional. New lower marginal income tax rates In 2018, there remain seven marginal income tax brackets, but most of the rates have dropped from last year. The new rates are 10%, 12%, 22%, 24%, 32%, 35%, and 37%. Most, but not all, will benefit to some degree from the lower rates. For example, all other things being equal, those filing as single with taxable incomes between approximately $157,000 and $400,000 may actually end up paying tax at a higher top marginal rate than they would have last year. Consider how the new rates will affect you based on your filing status and estimated taxable income. Higher standard deduction amounts Standard deduction amounts are nearly double what they were last year, but personal exemptions (the amount, $4,050 in 2017, that you could deduct for yourself, and potentially your spouse and your dependents) are no longer available. Additional standard deduction amounts allowed for the elderly and the blind remain available for those who qualify. If you're single or married without children, the increase in the standard deduction more than makes up for the loss of personal exemption deductions. If you're a family of four or more, though, the math doesn't work out in your favor. Itemized deductions — good and bad The overall limit on itemized deductions that applied to higher-income taxpayers is repealed, the income threshold for deducting medical expenses is reduced for 2018, and the income limitations on charitable deductions are eased. That's the good news. The bad news is that the deduction for personal casualty and theft losses is eliminated, except for casualty losses suffered in a federal disaster area, and miscellaneous itemized deductions that would be subject to the 2% AGI threshold, including tax-preparation expenses and unreimbursed employee business expenses, are no longer deductible. Other deductions affected include: • State and local taxes — Individuals are only able to claim an itemized deduction of up to $10,000 ($5,000 if married filing a separate return) for state and local property taxes and state and local income taxes (or sales taxes in lieu of income). • Home mortgage interest deduction — Individuals can deduct mortgage interest on no more than $750,000 ($375,000 for married individuals filing separately) of qualifying mortgage debt. For mortgage debt incurred prior to December 16, 2017, the prior $1 million limit will continue to apply. No deduction is allowed for interest on home equity loans or lines of credit unless the debt is used to buy, build or substantially improve a principal residence or a second home. Other important changes • Child tax credit — The credit has been doubled to $2,000 per qualifying child, refundability has been expanded, and the credit will now be available to many who didn't qualify in the past based on income; there's also a new nonrefundable $500 credit for dependents who aren't qualified children for purposes of the credit. • Alternative minimum tax (AMT) — The Tax Cuts and Jobs Act significantly narrowed the reach of the AMT by increasing AMT exemption amounts and dramatically increasing the income threshold at which the exemptions begin to phase out. • Roth conversion recharacterizations — In a permanent change that starts this year, Roth conversions can't be "undone" by recharacterizing the conversion as a traditional IRA contribution by the return due date. Page 1 of 4
- 2. Marriage and Money: Taking a Team Approach to Retirement Now that it's fairly common for families to have two wage earners, many husbands and wives are accumulating assets in separate employer-sponsored retirement accounts. In 2018, the maximum employee contribution to a 401(k) or 403(b) plan is $18,500 ($24,500 for those age 50 and older), and employers often match contributions up to a set percentage of salary. But even when most of a married couple's retirement assets reside in different accounts, it's still possible to craft a unified retirement strategy. To make it work, open communication and teamwork are especially important when it comes to saving and investing for retirement. Retirement for two Tax-deferred retirement accounts such as 401(k)s, 403(b)s, and IRAs can only be held in one person's name, although a spouse is typically listed as the beneficiary who would automatically inherit the account upon the original owner's death. Taxable investment accounts, on the other hand, may be held jointly. Owning and managing separate portfolios allows each spouse to choose investments based on his or her individual risk tolerance. Some couples may prefer to maintain a high level of independence for this reason, especially if one spouse is more comfortable with market volatility than the other. However, sharing plan information and coordinating investments might help some families build more wealth over time. For example, one spouse's workplace plan may offer a broader selection of investment options, or the offerings in one plan might be somewhat limited. With a joint strategy, both spouses agree on an appropriate asset allocation for their combined savings, and their contributions are invested in a way that takes advantage of each plan's strengths while avoiding any weaknesses. Asset allocation is a method to help manage investment risk; it does not guarantee a profit or protect against loss. Spousal IRA opportunity It can be difficult for a stay-at-home parent who is taking time out of the workforce, or anyone who isn't an active participant in an employer-sponsored plan, to keep his or her retirement savings on track. Fortunately, a working spouse can contribute up to $5,500 to his or her own IRA and up to $5,500 more to a spouse's IRA (in 2018), as long as the couple's combined income exceeds both contributions and they file a joint tax return. An additional $1,000 catch-up contribution can be made for each spouse who is age 50 or older. All other IRA eligibility rules must be met. Contributing to the IRA of a nonworking spouse offers married couples a chance to double up on retirement savings and might also provide a larger tax deduction than contributing to a single IRA. For married couples filing jointly, the ability to deduct contributions to the IRA of an active participant in an employer-sponsored plan is phased out if their modified adjusted gross income (MAGI) is between $101,000 and $121,000 (in 2018). There are higher phaseout limits when the contribution is being made to the IRA of a nonparticipating spouse: MAGI between $189,000 and $199,000 (in 2018). Thus, some participants in workplace plans who earn too much to deduct an IRA contribution for themselves may be able to make a deductible IRA contribution to the account of a nonparticipating spouse. You can make IRA contributions for the 2018 tax year up until April 15, 2019. Withdrawals from tax-deferred retirement plans are taxed as ordinary income and may be subject to a 10% federal income tax penalty if withdrawn prior to age 59½, with certain exceptions as outlined by the IRS. Open communication and teamwork are especially important when it comes to saving and investing for retirement. Page 2 of 4, see disclaimer on final page
- 3. Managing Money When You Marry: Financial Tips for Newlyweds Getting married is an exciting time for a couple. However, along with this excitement come many challenges. One such challenge is how to manage your finances together. The key to success is to communicate with your partner and come up with a financial plan that you both agree on, since the financial decisions you make now can have a lasting impact on your finances in the future. Map out your financial future together Your first step should be to discuss your common financial goals. Where do you see yourself next year? What about five years from now? Together, make a list of your short- and long-term financial goals. Short-term goals are ones that can be achieved in less than five years (e.g., saving for a down payment on a home or new car). Long-term goals usually take more than five years to achieve (e.g., paying off college loans, saving for retirement). Next, determine which financial goals are most important to both of you so together you can focus your energy on them. Prepare a budget A budget is an important part of managing your finances. Knowing exactly how you are spending your money each month can set you on a more clear path to pursue your financial goals. Start by listing your current monthly income. In addition to your regular salary and wages, be sure to include other types of income, such as dividends and interest. Next, add up all of your expenses. It helps to divide expenses into two categories: fixed (e.g., housing, food, transportation, student loan payments) and discretionary (e.g., entertainment, vacations). Ideally, you should be spending less than you earn. If not, you need to review your expenses and look for ways to cut down on your spending. Consider combining bank accounts You'll also need to decide whether you and your spouse should combine bank accounts or keep them separate. While maintaining a joint account does have its advantages (e.g., easier record keeping and lower maintenance fees), it is sometimes difficult to keep track of the flow of money when two individuals have access to a single account. Fortunately, online banking makes it easier to know exactly what is in your account at all times. If you choose to keep separate accounts, you might consider opening a joint checking account to pay for common household expenses. Resolve outstanding credit/debt issues Having good credit is an important part of any sound financial plan, so this would be a good time to identify any potential credit or debt problems you or your spouse may have and try to resolve them now rather than later. Order copies of your credit reports and review them together. You are entitled to a free copy of your credit report from each of the three major credit reporting agencies once every 12 months (visit annualcreditreport.com for more information). For the most part, you are not responsible for your spouse's past credit problems, but they can prevent you from getting credit together as a married couple. Even if you've always had good credit, you may be turned down for credit cards or loans that you apply for together if your spouse has a bad credit history. As a result, if one of you had credit issues, you might consider keeping your credit separate until your credit situation improves. Evaluate your employee and retirement benefits If you and your spouse have separate health insurance coverage through an employer, you'll want to do a cost-benefit analysis of each plan to determine whether you should keep your health coverage separate. Compare each plan's deductible, copayment, and benefits as well as the premium for one family plan against the cost of two single plans. In addition, if you and your spouse participate in an employer-sponsored retirement plan, you should be aware of each plan's investment options, matching contributions, and loan provisions. Review each plan carefully and determine which one provides the better benefits. If you can afford to, contribute the maximum amount possible to your respective plans. Assess your life and disability insurance needs While the need for life and disability insurance may not have seemed necessary when you were both single, as a married couple you may find that you are financially dependent on each other. Having life and disability plans in place will help ensure that your financial needs will be taken care of if either of you dies or becomes disabled. If you already have insurance, you should reevaluate the adequacy of your coverage and update your beneficiary designations. 1 "Stress in America," American Psychological Association, 2017 According to a survey by the American Psychological Association, 62% of Americans are stressed about money.1 The cost and availability of life insurance depend on factors such as age, health, and the type and amount of insurance purchased. Page 3 of 4, see disclaimer on final page
- 4. Cedar Point Financial Services LLC® Todd N. Robison, CLU President 10 Wright Street 2nd Floor Westport, CT 06880 203-222-4951 [email protected] www.cedarpointfinancial.com Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2018 Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Cedar Point Financial Services LLC is a member firm of PartnersFinancial. Kestra IS is not affiliated with Cedar Point Financial Services or PartnersFinancial. What is the employment situation report, and why is it important to investors? Each month, the Bureau of Labor Statistics publishes the Employment Situation Summary report based on information from the prior month. The data for the report is derived primarily from two sources: a survey of approximately 60,000 households, or about 110,000 individuals (household survey), and an establishment survey of over 651,000 worksites. Results from each survey provide information about the labor sector, including the: • Total number of employed and unemployed people • Unemployment rate (the percentage of the labor force that is unemployed) • Number of people working full- or part-time in U.S. businesses or for the government • Average number of hours worked per week by nonfarm workers • Average hourly and weekly earnings for all nonfarm employees According to the Bureau of Labor Statistics, when workers are unemployed, they, their families, and the country as a whole can be negatively impacted. Workers and their families lose wages, and the country loses the goods or services that could have been produced. In addition, the purchasing power of these workers is lost, which can lead to unemployment for yet other workers. Investors pay particular attention to the information provided in this report. For instance, a decreasing unemployment rate may indicate an expanding economy and potentially rising interest rates. In this scenario, stock values may rise with expanding corporate profits, while bond prices may fall for fear of rising interest rates. Advancing wages may also be a sign of higher inflation and interest rates, as well as greater economic productivity. Generally, the Employment Situation Summary report provides statistics and data on the direction of wage and employment trends — information that can be invaluable to investors. As a business owner, what should I know about using temporary workers? If you're planning to ramp up your temporary staff this summer, here are a few things to know. Generally, temporary work is any work that is not intended to be permanent or long term. Temporary work can be full- or part-time. Use of temporary workers (sometimes referred to as temps) may provide you with some flexibility to handle employee absences due to illness, vacation, or maternity leave. They may also help you handle special projects, busy times, or seasonal work. Temporary workers can be hired directly or through a temporary employment agency. Temporary workers you hire directly, even if part-time, are generally treated the same as full-time workers and may be entitled to employee benefits through you. For example, a worker who completes 1,000 hours of service in a year may be eligible to participate in your retirement plan. On the other hand, a temporary employee hired through a temp agency works for the agency, not for you. The employment agency is generally responsible for the temporary employee's benefits, if any. The hourly wage rate you pay to the agency may be higher as a result. The temp agency can save you time and effort by finding and screening potential employees so that you don't have to. The agency may have a pool of workers available at any time and at a moment's notice. The screening, in particular, may be worth the extra cost in the current tight job market. However, you may need to break in or train a temporary employee each time you get one from the employment agency. To minimize this, you may request that the employment agency send a temporary employee who has already worked for you before. Sometimes a temporary employee may become a permanent employee. If an employee was hired through a temporary employment agency, depending on your contract with the employment agency, you may need to pay a fee to the agency if you permanently hire the temporary employee. Page 4 of 4