Your Money, Your Wealth

Joe Anderson, CFP® and Alan Clopine, CPA discuss a brief history of the tax code and where it might be headed in YMYW podcast episode 87. Find out some possible tax exemptions and deductions under Trump’s presidency; plus, key tax strategies to take advantage of now before the tax code could change. Original publish date December 3, 2016 (hour 1). Note that content may be outdated as rules and regulations have changed. 02:35 “Over the decades, Congress simply amended the tax system by adjusting and assessing new taxes in a series of 17 internal revenue acts.  By 1939, the series of tax rules became the first formal internal revenue code. 15 years later was the first real tax reform….tax rates got as high as 91%.” 03:51 “It was in the Fifties that the alternative minimum tax came into play, and that was really designed for the wealthiest of people.” 05:50 “There’s Trump’s plan, and then there’s the GOP plan – there are similarities but [also] some pretty big differences.” 08:02 “Tax reform is not a slam dunk, even though we have a Republican president and a Republican majority in the House and Senate.” 09:50 “Here’s a quick nutshell on the ordinary income tax basis; this is what the proposal is. Right now we have seven brackets. They (GOP) wants to break it down to three. We have a 10%, 15%, 25%, 28%, 33%, 35% and 39.6% bracket. They want to combine the 10% and 15% bracket and call it 12%. Then they’ll combine the 25% and 28% tax bracket and call it 25%. Anything over the 25% tax bracket they’re calling it 33%.” 11:19 “Under Trump, he would like the standard deduction to be $15,000 for an individual and $30,000 for a married couple.” 15:01 “Capital gain rates right now are 0%, 15% and 20% depending on what your income levels are.” 18:07 “If you are in the 10% or 15% tax bracket today, if you sell that asset there is no tax up to the top of the bracket. Here’s a simple example…” 21:48 “You have to understand that things might be changing here, for the good or for the worst depending on what your overall situation is. Get an grasp on your overall situation before the end of the year to make sure you can take advantage of anything you should be taking advantage of this year and set yourself up appropriately for whichever changes may or may not happen.” 26:50 “There are two main proposals on the table right now: the Trump plan and the House GOP plan. They both want to change the way we deduct itemized deductions.” 27:50 “A donor advised fund is kind of like a mini private foundation...” 30:09 “One of the real benefits of the Roth conversion is for you and potentially your beneficiaries will potentially get all of that money tax-free.” 33:48 “Net unrealized appreciation is another one that’s probably on the chopping block. That’s taking stock out of your retirement account, moving it into a brokerage account to enjoy capital gains tax.”

Dividend paying stocks: do you understand how they work? Also in YMYW podcast episode 84, Joe Anderson, CFP® and Alan Clopine, CPA answer your biggest financial questions, from how to claim a loss on a Roth IRA to the pros and cons of rolling over an employee retirement plan into an IRA (individual retirement account). Original publish date November 19, 2016 (hour 2). Note that content may be outdated as rules and regulations have changed. 00:00 - Intro 02:04 “Most [people] don’t understand that when the dividend is paid, the stock price falls by that amount.” 04:55 “It’s not necessarily the best idea to focus solely on dividend paying stocks…with dividend paying stocks you’re paying taxes as you go.” 06:58 “It’s only a matter of time that the dividend stock prices go up because of demand.” 11:05 “I have a Roth IRA, open for over ten years now. I have contributed about $15,000 but lost about 80% of it due to some stocks that I invested in. Can I claim this 80% loss in my tax return?” 15:39 “I was recently told by more than one financial advisor that I should roll my employee retirement plan now that I’ve left the company, into an individual IRA. When I called that company to do just that, I was told by their advisor not to roll it over. He explained that I began investing in 2007/2008 when the market was low. If I were to roll over into an individual IRA today, I would be buying in when market prices are high, thus buying fewer stocks/bonds (whatever prices comprise the plan). He also said, since your plan has averaged a 5.1% gain this year, why would I want to lose that? Can someone speak to this logic for NOT rolling over?” 24:43 “Are profits from trading options (or stocks) in a non-qualified brokerage account subject to the 10.4% FICA tax?” 26:41 My wife and I are both 60 years old. We have taxable investments valued at $900,000, 401k and IRAs valued at $1,200,000, and a Roth valued at $23,000. We would like to retire in about 8 years. A co-worker said he heard that it is possible to pay no income tax in retirement, even on Social Security benefits. With my situation how is that possible?” 32:21 “A lot of people retire at 62 or 64 and are in a very low [tax] bracket, and could be doing Roth conversions all the way until age 70 1/2 and then be in a much better spot and in some cases pay little to no taxes.”

Are you prepared for retirement? These 6 questions will help you see if you're ready in YMYW podcast episode 83. Original publish date November 19, 2016 (hour 1). Note that content may be outdated as rules and regulations have changed. Have you explored downsizing your living expenses? Do you have a clear end game? Where are you on your debts?  Have you “right sized” your mortgage?  Have you considered the different types of income sources available to you in retirement? How would continuing to work at your peak earning years impact your quality of life in retirement? Later, Joe Anderson, CFP® and Alan Clopine, CPA discuss what Trump's presidency could mean for your taxes. Plus, strategic tax moves for year-end, including tax-loss harvesting and proper asset allocation. 01:36 “Here’s the first question: have you explored downsizing your living expenses?” 04:21 “I would say a lot of individuals need to reduce their living expenses.” 05:09 “Do you have a clear game plan? You may have a general sense of how much money you need to retire, but you aren’t truly ready to retire until you understand what it means in day to day terms.” 05:21 “It’s comparing your retirement number to your anticipated monthly expenses, making adjustments as needed and from there it’s doing simple mathematics.” 10:02 “It’s [about] looking at your entire overall situation to make sure that you answer a few different questions to make sure you're doing everything appropriately.” 11:00 “There could be some tax reform, there could not be…but we can at least tell you some ideas that Capitol Hill is throwing around and to make sure you’re prepared…the thing you can control is how much you pay the IRS.” 11:49 “I would say the people who are going to be affected if any of the changes go through is going to be small business owners, corporations and people who have a ton of money.” 14:16 “There are few things that won’t change, probably – one is the definition of income. Everything is still income whether it’s salary, pension, rental income, interest, dividends, lottery income, gambling income, all of that is still income so that’s very unlikely to change. The tax rate, however, could change but the fact of how income is being calculated is one thing that’ll likely stay the same.” 14:40 “Another thing is the 1099 forms which you get if you’re an independent contractor. Those will still be very applicable.” 16:26 “Reply to every IRS letter unless it says not to – this is common sense and it won’t change under Donald Trump.” 20:12 “Do not talk to the IRS if they visit you…if they come to your home or business, decline to speak to them and tell them your lawyer will call.” 22:53 “If you understate your income by 25% or more – that’s substantial understatement – the IRS can go back six years. Keep your tax returns forever.” 24:10 “Avoid amending returns; but if you do amend, don’t cherry pick…amended returns have a high audit rate, especially they request a refund.” 25:46 “Be careful with a big refund. If you’re getting a giant refund, the IRS is more likely to look at your tax return.” 29:04 “I’m going to give you some quick tips for end of year tax planning, some real simple things you can do.” 29:10 “One of them is tax-loss harvesting. What is it? Let’s say you had a loss in a certain position, you sell it and buy something similar. Those losses will offset any future gain.” 31:23 “Certain asset classes are in favor at certain periods of time in a cycle.” 34:07 “If you don’t have the right asset location, it’s going to be pretty difficult for you to do tax loss harvesting. Asset location is looking at what asset classes you hold in each account (tax-deferred, taxable, tax-free)…so you need to understand the taxation of the assets you hold in each account.” 36:06 “It’s about being more tax-savvy in your overall scheme of things to make sure you get the best after-tax rate of return.”

J. David Stein, host of popular podcast "Money for the Rest of Us" joins the show to talk about, you guessed it, money. Joe Anderson, CFP® and Alan Clopine, CPA interview Stein on the state of the markets after the nomination of President-elect Trump. Original publish date November 12, 2016 (hour 2). Note that content may be outdated as rules and regulations have changed.  Stein sheds light on failed market forecasts and how this past week demonstrated two points. First, you can't predict future outcomes, and second, you especially can't predict how the markets will react to those outcomes. Joe responds with the importance of ignoring short-term market volatility and instead, focus on your long-term goals when investing. 3:14 "We have two more topics, estate planning and IRAs. One of Trump's proposals is to get rid of estate taxes." 3:30 "Right now under current law if you were to pass away, your beneficiaries would receive your assets with no estate tax if your estate is less than about $5.45 million. So if your estate is $10 million and you're single, well some of that is going to be subject to an estate tax at 40% and some of it will come tax-free." 4:00 "Donald Trump would like to get rid of estate taxes altogether which is a huge saving for families that have a lot of assets, a lot of wealth, but there's a negative to that and I want to explain that." 4:10 "The last time we didn't have an estate tax was 2010, for one year, and we've had the estate tax basically since the Civil Year." 5:00 "Here's what's interesting about estate taxes is because the government doesn't want to tax an estate twice. There's an estate tax and then there's a step-up in basis for the next generation which means that any asset that you hold outside of a retirement account gets a step-up in cost basis to the value at date of death. So you bought a home for $100,000 and now it's worth $1,000,000 and your kids get the home, because it's under the exemption limit, it's as if they bought it for $1,000,000. They turn around and sell it right there and there's no gain or loss. The reason for the step-up is so you don't pay estate taxes and capital gains on the same property. Now if there is no estate tax, there may not be a step-up in basis." 6:20 "Last thing when it comes to estate planning which will affect just about everyone listening is retirement accounts.....right now there is something that's called the Stretch IRA. What that means is if your IRA goes to a non-spouse beneficiary, they have the right to stretch out the tax liability of that account for their lifetime. Once they inherit it, it's going to be taxed at ordinary income rates....right now they have the ability to stretch the tax out over their life. So it's a very favorable tax law for us individuals that inherit retirement accounts." 8:22 "What is probably going to happen, is what some experts say, first quarter next year - first 100 days, is that the [Stretch IRA] is gone." 9:46 Start of interview with J. David Stein 11:00 Joe Anderson: "Given this week, we had a lot of experts on their toes a little bit. Donald Trump is now our President...as Donald Trump was pulling ahead, you was the futures go down 700 points so everyone's thinking, oh man the market is going to crash. The week has been okay. I mean how the heck do we explain that?" 11:25 J. David Stein: "We explain that by saying, you cannot predict these one-off events. I had listeners expressing concern; if Donald Trump gets elected the market is going to crash, should I be pulling my money out? Now this was a month or two ahead of time. My response was, for one-off events you just can't predict what the reaction is going to be. 12:00 J David Stein: "Now what I teach is to adjust one's asset allocation for what I call regime changes. Where the risk of a recession is high, the risk of a 20% type decline in the stock market is high." 12:42: Joe Anderson: "We're emotional creatures and I think that's one of the biggest things from an education perspective. It's that you cannot worry about this short-term volatility. What's the goal for the money? You probably need it for your retirement over the next 10-20-30-40 years. We'll have many more presidents, we'll have many more corrections and we'll have many more crises and everything else." 14:15 J David Stein: "My insurance company had a 50% proposed increase for our health insurance. So that got me thinking, what's going on here? What is driving these dramatic increases in health insurance cost? Turns out, much of it is pharmaceutical." 15:20 Alan Clopine: "What is some of the best advice you would give to someone who is about to retire?" 15:54 J David Stein: "What I tell retirees is to find a source of income outside of investing. Have a lifestyle business or something of interest." 17:00 J David Stein: "One can't even imagine a 40-year retirement, I mean we can't comprehend what that's even like." 19:50 End of interview with J David Stein. Visit moneyfortherestofus.net to hear more from J David Stein

It’s been 30 years since the last tax reform, but President-elect Trump is planning for a change. Joe Anderson, CFP® and Alan Clopine, CPA take a comprehensive look into Trump’s proposals in YMYW podcast episode 81 and discuss how his potential tax law changes could affect you. Original publish date November 12, 2016 (hour 1). Note that content may be outdated as rules and regulations have changed. Reduce income tax brackets from seven brackets (10-39.6%) to three (12%, 25%, 33%) Increase standard deduction Remove personal exemptions 03:03: "Right now we have 7 [tax brackets] and Trump is proposing to go down to three." 03:10 "A lot of people are predicting that these first 100 days that Trump is in office, we might see a lot of action." 05:30 "[Trump] is combining the 10% and 15% tax bracket to 12%." 05:48 "It all depends on what happens with the standard deduction. They are looking at doubling up the standard deduction. So for lower wage income earners that doubling up of the standard deduction will potentially have less money taxed going into that 12%, where before they might have been taxed a little bit earlier on the 10%." 06:08 "The exact numbers if you're single, you get a standard deduction right now of $6,300 and $12,600 if you're married..." 06:40 "The new numbers being proposed would be a standard deduction of $15,000 if you're single and $30,000 if you're married." 06:50 "However, right now we get an exemption of about $4,050 per person, including dependents. Trump plans to get rid of that." 08:30 "The biggest tax savings will be clearly for those who make a lot of money." 08:34 "LeBron James, he's going to save $15 million in taxes." 10:05 "The last major reform was 1986, Reagan years. That was the tax simplification act." 11:40 "How you get to your taxable income today is after your exclusions and exemptions." 13:00 "[The proposed tax changes] could hurt those with a lot of kids." 15:15 "Let's get into capital gains. If you follow what Trump is saying, capital gains is not going to change except for the net investment income tax on top of capital gains." 15:38 "The net investment income tax is not taxed on ordinary income." 15:45 "The capital gains rate, as well as what's proposed by Trump, is as a married couple, the first $75,000 of taxable income, capital gains are taxed at 0%. There is no tax, they are actually tax free." 16:16 "Then you look at, up to the 25% tax bracket into the 39.6% bracket, you're at 15% and then it's at 20%. Basically the new capital gains law, and Trump's side is the same. If you look at Paul Ryan's it's a little bit different. It's 6.5% and then it goes to 12.5% to 16.5% - those are the three different levels depending on your holding period." 16:47 "One difference with Trump is that the 20% rate will kick in at the highest bracket which he's proposing at $225,000 of taxable income and right now for a married couple that highest rate doesn't happen until about $460,000 of taxable income. So that would actually be a slight increase." 18:15 "Right now is such a key time to be thinking about year-end tax planning because the tax law may change." 23:00 "That's a great way to create tax-free income in retirement is to net your losses with your capital gain income and then you don't pay any tax on that."

Joe Saul-Sehy, host of the top-rated personal finance podcast Stacking Benjamins joins Joe Anderson, CFP® and Big Al Clopine, CPA on Your Money, Your Wealth® podcast episode 80. Saul-Sehy talks about what investors or anyone interested in personal finance can learn from his unorthodox show focused on headlines and impressive guest perspectives. Joe and Big Al wrap up the show answering listeners personal finance questions. Original publish date November 5, 2016 (hour 2). Note that content may be outdated as rules and regulations have changed. 00:00 - Intro 02:29 - Start of Interview with Joe Saul-Sehy 03:41 - “Our goal is headlines – it’s a magazine-style show…we have great discussions about current events, financial planning and making sure people have the type of great advice that’s out there.” 06:02 - “That’s kind of how “Stacking Benjamins” was born – it allowed me to talk about money in a way where we kind of learn through play.” 08:05 - “There’s all this noise going on – you’ve got big media outlets with talking heads…everyone is talking about what you need to do now, yet you know most of the time the thing you should do is absolutely nothing. Study after study shows that the thing a great advisor brings to the table is convincing you that holding the line is the perfect thing for you to do.” 12:44 - “When I was an advisor, every smart person that was a client of mine could have done my job on their own but they always went to an advisor to look over their shoulder.” 15:12 - “I found that the more blunt I got, and the more I challenged people about their thinking when I disagreed with it, the more they wanted to hire me. That’s probably who you should be searching for when you’re looking for an advisor.” 16:00 - End of Interview with Joe Saul-Sehy 19:25 - “What are some examples of a value-added tax?” 21:26 - “I am 60 years old and plan to retire at 67. I have a 403(b), a HSA, and a couple mutual funds, but I keep hearing I should start a Roth IRA. Why would I want to start a Roth on the home stretch?” 24:30 - “If you’re in a low tax bracket right now, you might even want to look at Roth conversions relative to your retirement. There a lot of things we’d have to know about you to see if that’s a good idea or not.” 27:29 - “How much income can I make a year before my Social Security payments reduce?” 30:23 - “Can I apply to have 401(k) funds pay for a home purchase instead of an existing loan?”

Are you making these mistakes that could sabotage your retirement? In episode 79 of the YMYW podcast, learn tips to avoid making costly financial mistakes with your nest egg. Original publish date November 5, 2016 (hour 1). Note that content may be outdated as rules and regulations have changed. 00:00 - Intro 03:15 - “You’ve got public pension plans and private pension plans, and sometimes they play by different rules.” 06:43 - “The problem with some of these defined benefit plans and why there is $1.7 trillion underfunded is the assumptions are a little off.” 09:43 - “The point is, you don’t have any control over these defined benefit plans.” 12:18 - “Mistake one is failing to plan for medical expenses.” 17:00 - “Mistake number four is helping out adult kids.” 19:03 - “When it comes to retirement, you have to pull money out of your IRAs and 401(k)s and you pay taxes on that. A lot of people don’t realize that. In many cases when you’ve done a great job saving you’re in a higher tax bracket even when you’re working because of that required minimum distribution.” 22:04 - “[one of] the seven scariest retirement moves…is holding most of your retirement funds in a single company stock.” 24:32 - “If you do have company stock and you’re heavily weighted there, before you diversify out – just make sure that you understand net unrealized appreciation.” 33:11 - “Here’s another scary retirement move: thinking you can actually beat the stock market.” 36:20 - “No tax diversification - that means you’ve got all your assets in your retirement accounts…”

Joe Anderson, CFP® and Alan Clopine, CPA discuss some of the 2016 California propositions and how they affect your finances, in episode 78 of the YMYW podcast. Plus, what's the difference between gross income and taxable income? Original publish date October 29, 2016 (hour 2). Note that content may be outdated as rules and regulations have changed. 00:00 - Intro 07:02 - “Prop 13 is when you buy a home in year number two and your property taxes can only go up 2% regardless of how much the home increases in value.” 09:24 - “What is the difference between gross income and taxable income?” 10:49 - “There’s something called itemized deductions and exemptions. Itemized deductions would be like a home mortgage, estate taxes, property taxes and things like that.” 15:26 - “For those who have the Roth provision in your 401(k) plan – you want to look at your taxable income.” 17:40 - “What should I do with a lump sum pension in an IRA?” 23:52 - “I took out a personal loan of $8,000 for debt consolidation purposes with my credit union. I'm simply wondering if this loan will affect my income tax in any way. Do I report the loan on my taxes? Will it make a difference in how much my refund will be?” 25:03 - “Can I obtain a loan on a quitclaim property?”

What is the Social Security spousal benefit? Joe and Big Al explain in episode 77 of the YMYW podcast. Plus, how leveraging your home equity in a reverse mortgage can help you generate retirement income. Original publish date October 29, 2016 (hour 1). Note that content may be outdated as rules and regulations have changed. 00:00 - Intro 02:57 - “If you’re married you have a spousal benefit, or if you were married and divorced and were married to that individual for ten years, you could potentially qualify for that spousal benefit on your ex-spouse as long as you haven’t re-married.” 05:23 - “If I take the spousal benefit prior to my full retirement age, I would receive a reduction in that benefit. You can take Social Security benefits as early as 62.” 08:17 - “When you look at a restricted application, that goes hand in hand with your spousal benefit.” 14:19 - “A lot of us are living longer and you’ve got to think of Social Security as maybe longevity insurance.” 17:23 - “The difference between [taking your Social Security] at age 62 versus age 70 is a 76% increase.” 23:03 - “[Hillary Clinton] wants to keep the tax brackets that we have right now as is except she wants to add a surtax if your adjusted gross income is over $5 million.” 25:31 - “Trump would actually like to reduce our taxes; he wants to take it to three brackets – 12%, 25% and 33%. Right now our lowest bracket is 10% and our highest is 39.6%.” 35:57 - “Costs of buying and selling a home only to do it again during retirement might cost you more money.”

In episode 76 of the YMYW podcast, Joe Anderson, CFP® and Alan Clopine, CPA answer investors' questions about bond returns, how interest rates affect bond prices, the difference between short term vs. long term bonds, and more. Original publish date October 22, 2016 (hour 2). Note that content may be outdated as rules and regulations have changed. 00:00 - Intro 00:44 - “Is it sensible to live on my own?” 04:06 - “Will I be penalized for a 401(k) withdrawal?” 04:59 - “I am about to turn 21 and currently in my junior year of college. I have budgeted my income so that I have a portion of it stashed in my savings every month. What sort of investments should I look into to generate more income with the excess income I receive?” 11:36 - “We should stress that we are going to talk taxes and strategies, not politics.” 12:12 - “Should I invest in bonds now or after the presumed interest rate hike?” 17:05 - “The shorter term of the bond, the less risk that you’re taking, hence less volatility.” 18:12 - “What’s the advantage of going into a short-term bond versus staying in cash?” 24:20 - “With bonds, there are two sides to this: the price and the coupon rate.” 29:40 - “If you have a SIMPLE plan, can you still contribute to an IRA?” 34:16 - “Should I move my 401(k) into a money market account?”