Thanksgiving Family Money Letter 2017


Happy Thanksgiving! Here’s my annual newsletter filled with tips to talk about with your family over the Thanksgiving table, because money is probably the least stressful topic, right? There are four sections to the newsletter – feel free to skip around between General updates, Tax Tips, Tea T.I.M.E. (Investing news), and Financial Planning Tips.

#1: Updates!Tea & Taxes continues to wind down as I make room for more people and more services in ProsperiTea Planning. What do you need to do now? If you are a tax-only client from the old Tea & Taxes practice, please reply to my email about taxes next year. If you would like to know more about ProsperiTea to see if it is right for you, read Are you ready for ProsperiTea,

Party! We’re having an open house on January 10 for on-going clients. Along with handing out organizers and confirming appointments, we will have various teas to try (we’ll have a poll and keep track of what you like!) and party games. We’d love to see you anytime between 10 and 6. We’ll also hand out 1099-MISC forms for self-employed people to give to their contractors, too. Fun times! No, really!

Learning & Growing! It’s been a good year for me. As a CPA and CFP® and Investment Advisor, I stand at the intersection of three esoteric subjects. I’ve been honored to be asked to speak about “Tax Alpha” to the Boston chapter of the National Association of Personal Financial Advisors (NAPFA) as well as at the national convention of the Alliance of Comprehensive Planners.

I’ve gone to three conferences this year: a day-long conference in Boston on Socially Responsible Investing, a huge conference in Las Vegas for CPA/Financial Planners, and the tax-focused advisor’s conference in San Antonio where I was one of the speakers. I’ll also do three local days of continuing ed to keep up to date on taxes.

#2: Tax Tips! There’s a new tax deduction this year for 529 plans this year, either the U.Plan (prepaid tuition) or the U.Fund (an investment account with Fidelity.)

There’s also a new type of investment account that helps people on MassHealth have some assets without doing a more expensive “Supplemental Needs Trust”. The Federal “ABLE Act” lands in Massachusetts as the “Attainable Savings Plan” through Fidelity. (What’s up with Fidelity? Read Wendy’s rant about that in the Custodian article.)

How to do tax planning in this environment?
 It’s still a good idea to make sure you’re using up any room in your 15% bracket. Basically, if your taxable income (after deductions and exemptions) is less than $38,000 as a single person or $76,000 as a married couple (that’s the amount your taxes will be charged on) you’re in the 15% or lower bracket and you want to use that up unless you’re sure you’ll be in a lower bracket in the future. Most of the time I wouldn’t bet on it! Ways to use up the space in the bracket: sell some stocks at capital gains. Do a Roth conversion. Take distributions from annuities. Cash in an imploding life insurance policy. See more about this in the Tax Alpha article.

There is much to despair in the tax bill currently being considered in Washington, but overall raising the standard deduction is going to be a good thing. My guess is that the Senate and House won’t be able to reconcile and very little will actually change, but if anything changes at all it’ll be raising the standard deduction. So my crystal ball* says that this is a good year to bunch up deductions if you possibly can. Prepay your state and local taxes in December. Make charitable contributions. Set up a Donor Advised Fund to take a deduction this year for charitable gifts you’ll make in later years – only appropriate for people who regularly make charitable gifts, though! (* You know my crystal ball doesn’t really tell me things, right? But, hey, now I’m a regulated investment advisor I need to spell out this sort of thing.)

Speaking of charitable gifts, you can make donations to charity straight out of your IRA if you’re over 70 1/2. I highly recommend that method as it reduces your Required Minimum Distribution and is really a thing of beauty.

#3: Tea T.I.M.E.
Don’t want financial planning but DO want someone managing your investments? I’ve noticed that need and am now ready to offer to meet it. I’ve spent the last couple of months tooling up some of my investment management tools, including signing on with a lovely new custodian and picking up some techy tools. Tea T.I.M.E clients will get my “Taxes and Investment Management Experience”. You can spend your time at (the tee)/(having tea) and I’ll meet with you around twice a year; once to do tax planning/rebalance your portfolio and another to do tax prep.

I’m a big believer in Investment Policy Statements. Read more about my investment philosophy here.

In June at the AICPA conference in Las Vegas I learned a really great tip for how to get the best possible investment returns into a Roth by doing strategic Roth Conversions. I write about it here

More recently, I just saw a really compelling argument in favor of building 10 year bond ladders where the first three years were built from a CD ladder and the last three years used a high quality intermediate term bond fund from Dimensional Fund Advisors. What was so compelling about that was they manage the duration to target the rolldown of the yield curve. Managing the bond fund this way eeks out a slight, but noticeable advantage over an unmanaged Vanguard fund investing in the same bonds. I’ll be implementing that trick going forward, especially now that I can buy that DFA fund without a commission at TD Ameritrade.

Over the past year I’ve really explored the evolving world of Socially Responsible Investing (SRI), more recently renamed “Environmental, Social and Governance Factor (ESG) Investing”. I write more about that here.

#4: Financial Planning Tips! 

Sammy left for college this year and I did more continuing ed on college planning. A few snippets of what I’ve learned: geographic diversity matters. Prestigious New England colleges have enough kids from New England. Consider improving your odds at getting in by applying someplace in the Midwest or South. On the other hand, UMass is wonderful. Sammy is in the Honors College and that prepaid tuition plan we set up years ago through the U.Plan is working great. (Read my thoughts on 529 plans in general here.) Did you know that parents get to eat free at UMass? Sam misses the dog, so once a month or so we take River to visit him, coincidentally around dinner time. We’re calling it “Sammy’s night to cook”.

Student loans are a really complex topic, so complex that I’ve come away from a few continuing ed course on it just understanding that I’d need to get expert help if someone might possibly qualify for loan forgiveness. The short version to put here is that the Direct Federal Loans (both subsidized and unsubsidized) are safe and reasonable to take. Anything above that, including Parent PLUS loans offered on acceptance letters, is problematic and we should discuss. People in public sector jobs should investigate repayment options.

Long-term Care Insurance is turning out to be a bear to get. I’ve tried to get it for a few people this year and nearly everyone was refused. If you are at all interested in ever having that sort of insurance you should apply sooner rather than later. Read more about that here.

There’s a new(ish) financial planning tool available for retirement planning. If you (or a loved one) intends to stay in their home until they die AND they don’t necessarily care if the home stays in the family after both spouses are gone, there are some cool things we can do with a HECM line of credit [click to read more]. Basically, you can arrange to tap the equity of your home some day, if you need to, for less than the cost of a year’s worth of long-term care insurance. There’s a possibility of the amount you get access being more than the value of the house. It’s not perfect, but it’s really interesting.

Here are a few good year-end financial planning tips: check your beneficiaries on workplace plans and life insurance plans, as well as things like HSAs and 529 plans. Here’s an article about when you can throw out that old paperwork.

I heard a great tip for life insurance this year: layer term policies in a pyramid. If you have a young family and need, say, $1M in life insurance, get a $250,000 thirty-year level term, a $500,000 twenty-year level term, and a $250,000 10 year level term. During the first ten years you’ll have $1M, then as the kids stop being babies you’ll drop down to $750K in life insurance, then as they grow up it’ll drop down to $250K until the mortgage is paid off. It’s a lot cheaper than getting one 30 year level term for $1M!

Social security still has a loophole available called a “restricted application” grandfathered in for people born 1953 or earlier. Getting the most social security for a joint life expectancy is still a place where a planner (that’s me!) can add a lot of value.

Have you ever considered your “digital legacy“? Here’s a great article to pass along to you about that. In this era of perpetual hacks, many people have asked me about identity theft protection. Honestly, I’m not that worried about your identity being stolen. I’m way more concerned about your ASSETS being stolen. I write often about data security. If you’re not using a password manager I think it’s a really good idea to start. Here’s aarticle I wrote about data security. I’ve got tools in place for most of my accounts to be managed by my digital heir, including things like the Google’s “inactive account manager” and the LastPass “emergency access” feature. Read more about “Death and the Internet” in this wikipedia article.

I review books in my blog: you can find them by clicking on the tag cloud on the front page. Recently, I reviewed a bunch of books and podcasts for young adults on financial literacy. You can read my thoughts (and book reviews) here.

Best wishes for a Happy Thanksgiving. Hope to see you soon!