Three Ways to Establish and Improve your Credit Score

Contributed by: Matt Trujillo, CFP®

In a previous blog I discussed how your credit report is composed and what goes into a credit report; I would encourage you to check out to find out how your score is calculated. Now, I want to discuss methods for improving your credit score, if you are unhappy with your current number, and/or establishing credit if you are just getting started.

First, let’s start by establishing how you get credit. If you want to establish credit, you need a regular source of income. The income can be derived from a job, trust fund dividends, government benefits, alimony, investment dividends, or any number of sources. What’s important is that you have some kind of continuing and predictable cash flow. Without regular income, you cannot demonstrate an ability to make regular payments. Establishing a regular source of income is your first step.

Once you have a steady source of income it is time to start applying for credit. If you are just starting out or are looking to repair credit, I recommend starting small. Here is a short list of ideas that you can consider for getting easy access to credit and slowly starting to improve or establish your score.

An overdraft line of credit on your checking account at your bank

• Here is how it works. You have a checking account. You apply for and are granted an overdraft line of credit in the amount of $500. Your checking account balance is $40. You write a check for $75. When the check is presented to the bank for collection, the bank does not return it for insufficient funds. Instead, it credits your checking account in the amount of $100. Now you have a balance of $140 in your account. The bank can honor the $75 check, leaving you with $65 in the account. The bank bills you monthly for the $100. You can repay the $100 all at once, or make minimum monthly payments. You will be charged interest and perhaps a service fee. Although it may not look like a loan, it is. Activity on these accounts is regularly reported by many banks.

Getting a secured credit card

• Many credit issuers offer secured credit cards. A secured credit card provides you with an open line of credit secured by a cash deposit. These types of cards typically come with a high interest rate. Here is how a secured credit card works. You give the credit card issuer a cash deposit. The credit issuer gives you a credit card with a credit limit equal to the cash deposit. You can charge up to the credit limit using the card, and then make monthly payments on the balance. If you fail to make the payments, the credit card issuer uses your cash deposit to cover the unpaid balance. If you make your payments as agreed, you will eventually establish credit (or improve your current score) and qualify for an unsecured credit card. The secured credit card issuer will return your deposit, less any unpaid balance due, when you cancel the account.

Using collateral when applying for new lines of credit

• When you secure credit, you give the lender collateral to back your loan. The risk is reduced for the lender. If you do not pay, the lender can use the value of the collateral to satisfy the debt. Collateral can be anything of value, but usually takes the form of cars or real estate. If you have something of value, but no credit rating, you may be able to acquire credit by offering to post your valuables as collateral.

These are just a few simple and easy ways to either establish credit or improve your credit score in order to build a credit report you are comfortable with.  

Matthew Trujillo, CFP®, is a Certified Financial Planner™ at Center for Financial Planning, Inc. Matt currently assists Center planners and clients, and is a contributor to Money Centered.

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The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of Matt Trujillo and not necessarily those of Raymond James.

A Change to Your American Funds CollegeAmerica 529 Plan

Contributed by: Melissa Parkins, CFP®

If you have 529 Plan(s) with American Funds CollegeAmerica, a change is coming this year that you should be aware of.

What is happening?

On June 24, 2016 your CollegeAmerica 529 account will be transferred out of the custody of American Funds, and into the custody of Raymond James.

What does this mean?

• Better communication, efficiency, and service for you! Raymond James will now hold your CollegeAmerica 529 account assets instead of American Funds.
• Communications about your account will now be more consistent and clear. Statements and tax documents will all come from Raymond James, instead of multiple communications from multiple sources.
• If your 529 account is currently enrolled in systematic purchase plans at American Funds, they will continue without any disruptions or delay. The information will be transferred to Raymond James to continue any automatic transactions that are currently set up.
• Your Raymond James account number for your 529 account will not change. The CollegeAmerica Program will continue to govern your account, but Raymond James will now hold the account.
• The change will not affect the value of your investments, and there will not be any fees for this transfer.

What other information will you be receiving?

• You will receive a letter from Raymond James at the beginning of April with the details of this change. If you have more than one CollegeAmerica 529. You will receive multiple mailings, one for each account.
  • This letter will state that your financial advisor (us) will now be your single point of contact for managing your American Funds CollegeAmerica 529 account. We have always been your main point of contact for these accounts. So you will continue to call or email us with any requests related to your accounts.
• You will receive a statement from American Funds after June 24 reflecting a zero balance, because your investments in the 529 account will no longer be held by American Funds. The statement will show a transfer out of the 529 plan.
• Two year-end statements will be sent for your 529 plan in early 2017: one from American Funds and one from Raymond James. Your year-end statement from American Funds will indicate that the funds transferred out.
• If you had any reportable transactions before June 24, you will receive a 1099-Q tax document from American Funds. If you had any reportable transactions after June 24, you will receive a 1099-Q tax document from Raymond James. These would also both come in early 2017.

In a nutshell, not much is changing from your end. This change will allow us to more timely and efficiently service your 529 accounts, since we will no longer need to go through American Funds for any processing. This means better service to you! Please call us if you have any questions.

Melissa Parkins, CFP® is an Associate Financial Planner at Center for Financial Planning, Inc.

What The Bachelor taught me about Personal Finance

Contributed by: Clare Lilek

I know what you’re thinking, how could the reality TV show The Bachelor teach me financial lessons? Well, dear reader, you will be surprised at what you can learn from other peoples’ misguided actions.

As of late, I have gotten into a new TV show. Ironically, one I thought I would never watch. Yup, you’ve guessed it: The Bachelor. I never really saw the point in the show—the excess drama, the crafted confessions and personas, and of course, all of this under the guise of finding “true love”—until I had a group of friends to watch the show with and debunk all the over-the-top drama. It actually can be fun and kind of engrossing. So, along with half of America, I resigned myself to having a guilty pleasure.

Recently, I came across an article, “25 Behind-The-Scene-Secrets about The Bachelor.” The title alone caught my eye. I knew it would be a little foray into the actual reality behind the “reality TV show.” Just like the appeal of tabloid magazines, getting behind the scenes gossip on The Bachelor, or any TV show obsession, is deeply satisfying. I, however, was most shocked by the reveal of the financial aspect of the show.

While watching with my friends, we frequently comment on the outfits of the female contestants because during every Rose Ceremony they are all dressed to impress in ensembles that can rival the most ostentatious red carpets. This could be their last chance to appeal to The Bachelor before he makes a final decision—aka their last time on TV—so they consistently look like an entire hair and makeup team, equipped with fashion expert, styled them. According to this article, that is false. These women, apart from the first and very last episode of the season, do all their own styling and have bought all their own clothes. Before coming on the season they have to prepare for 7 weeks of filming. If they are in it to win it, they have to buy gorgeous gowns and sassy dresses for 10 different rose ceremonies! Not to mention group and individual dates, making sure they look approachable yet at the same time like a glam team primped them before. Do you know how much time, effort, and most importantly, money that takes?! A lot. The answer is a lot.

How then, you might wonder, do these 20-somethings afford being on The Bachelor? First of all, it’s important to note that many of the contestants have to either quit their job or go on unpaid leave for two months. After which, the winner, might chose to move locations to be with her new beau. Many of the contestants, in order to foot the bill have reportedly either borrowed against or completely cashed in their 401(k)s. Apparently retirement savings can wait when you’re looking for love on national television. More contestants go into credit card debit to front the money that can’t be found in their savings account.

Let’s look at an example:

The average contestant could be a single woman, age 25, who earns $50,000 a year putting her in the 25% tax bracket. Let’s say she has about $10,000 in her 401(k). If she needs an influx in cash she has a few options: take out a personal loan, remortgage her home, max out her credit cards, borrow against her 401(k), or take a distribution from her 401(k) (essentially cashing it out). Taking out a distribution before you are 59.5 years of age means you have to pay a 10% penalty on that distribution on top of the income taxes for that money. So not only does this particular contestant not have savings for her eventual retirement or investments growing over time, she now has only $6,500 to spend on clothes, beauty products, and whatever else they need in order to find “true love.”

Now let’s look at the potential financial upside of being on The Bachelor, and no, this usually doesn’t come with benefits or a retirement plan. The contestants don’t get paid for going on the show, but when they arrive they receive a goody bag filled with clothes and beauty products. There is also the chance that the contestants fall into fortune after gaining fame from the show by endorsing products and the like. Also, The Bachelor gets paid a reported $100,000 and gets a lot of endorsement deals. So along with getting an expensive Neil Lane diamond engagement ring (which after two years of being together, the couple can cash in with written producer approval— “cha-ching”), winning the show might mean you fall into quite a bit of money.

Of course, not every woman can (or would!) trade in her 401(k)s for a chance at landing a fiancé. But the next time you’re watching The Bachelor (or thinking about applying yourself) remember the money and tough choices it takes to get there. I guess the reality behind reality TV is a lot less glamorous than you might think.

Clare Lilek is a Challenge Detroit Fellow / Client Service Associate at Center for Financial Planning, Inc.

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Any opinions are those of Clare Lilek and not necessarily those of Raymond James.

Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website's users and/or members.

How Market Volatility Can Be Your Friend

Contributed by: Nick Defenthaler, CFP®

Chances are if you’re in your thirties or forties, the financial media is something you don’t watch on a daily basis (don’t worry; we think that’s a good thing). You’re busy with life. Between your career, family, after-school activities for your kids, commitments with friends etc., it’s hard enough to carve out a few minutes to unwind at night, let alone find the time or interest to keep up on recent updates in the stock market.  Even if you aren’t a financial media junky, you’ve probably still seen a few headlines or overheard co-workers discussing how crummy the markets have been so far in 2016 and that 2015 wasn’t a great year either.

If you’re in “accumulation mode” and retirement is 15 years or more out, don’t get caught up in the noise or the countless investment tips and stock picks you’ll inevitably hear from others. If your investment accounts are positioned properly for your own specific goals, with personal objectives and risk comfort levels in mind, roller coaster markets like we’ve experienced over the last few months are your friend. For some reason, investments are the only things I can think of that people typically don’t like to buy when they may be undervalues OR at attractive valuations. Why? Because it can be a little nerve wracking and possibly seem counterintuitive to continue to “buy” or invest when markets are falling. But what is occurring when you do just that? You’re purchasing more shares of the investments you own for the same dollar amount! Let’s look at an example: 

Sarah is 38 and is putting $1,000/month into her 401k, which is roughly 10% of her salary. She owns a single investment with a current share price of $10, meaning for this month, she bought 100 shares ($1,000 / $10/share). What if, however, the market declines like we’ve seen so far in 2016 and now the share price is down to $9? That same $1,000 deposit is going to get Sarah just over 111 shares ($1,000 / $9/share). Since she is about 25 years out from retirement, Sarah welcomes these short-term market corrections because it gives her the opportunity to buy more shares to potentially sell at a date in the future at a much higher price. If we look back in history, those who stayed consistent with this strategy typically had the greatest success.  

Everything I’ve described above is pretty straightforward. It’s not flashy or “sexy” and it might even sound somewhat boring. Good! Investing and financial planning does not have to be overcomplicated. I recently heard this quote and it really resonated with me: “Simplicity wins every time. Complexity is the enemy of execution.”  Why make things more complicated than they have to be?

Here are a few examples of simple, but effective ways to build wealth:

• Live within your means.

• Save at least 10% of your income for retirement each year starting early and increase that percentage 1% each year. For more information, check out a blog I wrote on this topic.

• Invest in a well-balanced, diversified portfolio that matches YOUR needs, not someone else’s.

• Work together with a financial planner that you trust and who can help to take as much stress out of money for you and your family as possible.

• Tune out the “noise” from financial media – the world doesn’t end very often!

You might be thinking, “I know this stuff is important, but I just don’t have the time or desire to understand it better.” Fair enough. This is one reason of the many reasons our clients hire us. They know we’re experienced and are passionate about an area in their life that is extremely important, and our clients want to get it right. Our goal is to work with you to make smart financial choices and help take the stress out of money for you and your family during each stage of your life. Let us know how we can help you do just that. 

Nick Defenthaler, CFP® is a CERTIFIED FINANCIAL PLANNER™ at Center for Financial Planning, Inc. Nick is a member of The Center’s financial planning department and also works closely with Center clients. In addition, Nick is a frequent contributor to the firm’s blogs.

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This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of Nick Defenthaler and not necessarily those of Raymond James. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Past performance is not a guarantee of future results. Dollar-cost averaging cannot guarantee a profit or protect against a loss, and you should consider your financial ability to continue purchases through periods of low price levels. Investing involves risk and investors may incur a profit or a loss regardless of strategy selected. There is no guarantee that using an advisor will produce favorable investment results. Diversification and asset allocation do not ensure a profit or protect against a loss. The example provided in this material is hypothetical and for illustrative purposes only. Actual investor results will vary.

Are You a Peyton or a Cam Investor?

Contributed by: Sandra Adams, CFP®

As we approach Super Bowl Sunday, considered the greatest American sports day, the farthest thing from our minds might be our investments. And given the volatility of markets thus far in 2016, that might be a welcome break!  However, the quarterbacks in Super Bowl 50 provide us the opportunity to observe two very different personalities in sports that we can relate to our investment personalities.  Which quarterback are you more like?

 Peyton Investors:

• Value consistency of performance over the long term.  Peyton Manning has been a quarterback in the NFL since 1998 and will be playing in his 4th Super Bowl on Sunday at the age of 39 and 320 days (the oldest quarterback to play in the Super Bowl).  He is a five-time league MVP and is one of the NFL’s ELITE quarterbacks.  He is the epitome of performing at a high level over the long term.

• Desire to use experience and wisdom built over time to make low risk decisions, even in times of high stress.  Peyton has experience in the playoffs – while it is his 4th trip to the Super Bowl – he has done so under 4 different coaches.  He has worked with different players, different coaches and in different situations over a lot of years, giving him the ability to handle himself and his team in almost any situation. 

• Aim for balance and an even keel.  Just like when investment markets are stressful, the Big Game can get stressful, but Peyton seems to always have a cool head and not overreact based on emotion.

Cam Investor:

• Get a rush from a new and exciting investment opportunity.  Cam Newton was drafted into the NFL in 2011 by the Carolina Panthers, so is still very new to the league.  His youth, size and athleticism make him a clear standout amongst current NFL quarterbacks.  In addition, he has a clear affinity for excitement and taking risks – dazzling the crowd with exciting plays and athletic feats not seen before. 

• Desire change on a more often basis.  Cam changes up his play selection on a more often basis; surprising the defense is his goal.  For an investor, this translates into someone who change his portfolio to the newest investment idea on a regular basis.

• Wish to celebrate successes.  Of course I had to go there…we’ve all seen Cam celebrate…it’s his thing. Whether it’s the chest pumping or the “Dabbin” – Cam likes to celebrate his successes.  The only problem with too much gusto – what happens when the success ends?

So, as we approach Super Bowl Sunday and you sit down to enjoy the big game, keep an eye on Peyton and Cam and see if you can identify with either of them – as a quarterback or as an investor.  And no matter which team wins, know that we at The Center were watching and cheering along with you. And don’t think of us as the Cam or the Peyton – we’re the coach with the eye on the ball and the experience to help you call the plays.

Sandra Adams, CFP® is a Partner and Financial Planner at Center for Financial Planning, Inc. Sandy specializes in Elder Care Financial Planning and is a frequent speaker on related topics. In addition to her frequent contributions to Money Centered, she is regularly quoted in national media publications such as The Wall Street Journal, Research Magazine and Journal of Financial Planning.

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This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of Sandy Adams and not necessarily those of Raymond James. Investing involves risk and investors may incur a profit or a loss regardless of strategy selected. Holding investments for the long term does not insure a profitable outcome.

Taking a Look at Your Credit Score

Contributed by: Matt Trujillo, CFP®

If you have ever financed anything before, then you are probably familiar with the concept of your “credit score.”  This number, or score, can play a significant role in your life as it has real implications when you go to purchase a home or car, to name a few big ticket items. Most of you reading this probably have a sense of what your current score is, but have you ever wondered how that score is calculated?

Here is a quick break down of the composition:

35%: Payment History

Naturally payment history is one of the biggest components of your credit score. Have you paid your bills in the past? Did you pay them on time? 

30%: Amounts Owed

Just owing money doesn’t necessarily mean you are a high risk borrower. However, having a high percentage of your available credit being used will negatively impact your credit score.

15%: Length of Credit History

Generally having a longer credit history will increase your overall score (assuming other aspects look good), but even people with a short credit history can still have a good score if they aren’t maxing out their credit and are paying bills on time.

10%: New Credit Opened

Opening several lines of credit in a short period of time almost always adversely affects your score. The impact is even greater for people that don’t have a long credit history. Opening multiple lines of credit is generally viewed as high risk behavior.

10%: Types of Credit you have

A FICO score will consider retail account credit (i.e. Macy’s card), installment loans, mortgage loans, and traditional credit cards (Visa/ MasterCard etc). Having credit cards and installment loans with a good payment history will raise your credit score. 

Hopefully now you have a better understanding of how your score is comprised. For more information please visit www.myfico.com for tips and strategies on how to improve your score!

Matthew Trujillo, CFP®, is a Certified Financial Planner™ at Center for Financial Planning, Inc. Matt currently assists Center planners and clients, and is a contributor to Money Centered.

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(source: http://www.myfico.com/ ) This material is being provided for information purposes only. Any opinions are those of Matt Trujillo and not necessarily those of Raymond James. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete.

Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website's users and/or members.

Put the Adventure in Longevity Planning

Contributed by: Sandra Adams, CFP®

We are living longer – like it or not.  Currently, one in four Americans is over age 60.  And according to a 2012 report on mortality in the United States from the Centers for Disease Control and Prevention's National Center for Health Statistics, the average life expectancy for a person age 65 years old in 2012 is 19.3 years – 20.5 years for women and 17.9 years for men.  And if you are lucky enough to have good genes, access to good health care, good food, etc., the sky is the limit. Good news, right?

Surprisingly, the longevity conversation most commonly brings about negative feelings and topics when discussed in client meetings.  Thoughts immediately come to mind of diminished mental capacity or dementia, physical limitations, need for long term care, nursing homes, etc. Clients immediately default to an aging future where they have limited control or limited abilities and it is not a future they are looking forward to.  Longevity is NOT a good thing (they say)!

But what if we changed the way we thought about those extra years we might have?  What if we, instead, viewed them as a gift of extra years that we weren’t expecting to have?  Extra years to do those things we never had time to do when we were working or raising families?  Those bucket lists that never got checked off?  Those adventures left unexplored?  Yes, of course, we need to plan for those “what if” scenarios that might happen later on in life, but let’s make those plans and put them away for later.  And in the meantime, let’s enjoy the extra years we are being given.   You can get some great ideas from some folks who are making the most of their extra years by going to www.growingbolder.com.

Of course, all of this takes good financial planning.  Living longer means stretching your income sources and your investments for your (even longer) lifetime.  And having clear strategies for funding your longevity adventures, as well as any potential long term care needs, will be important.  Contact your financial planner to begin having your longevity planning conversations now.  The sooner you begin to plan, the sooner your adventures can begin!

Sandra Adams, CFP® is a Partner and Financial Planner at Center for Financial Planning, Inc. Sandy specializes in Elder Care Financial Planning and is a frequent speaker on related topics. In addition to her frequent contributions to Money Centered, she is regularly quoted in national media publications such as The Wall Street Journal, Research Magazine and Journal of Financial Planning.

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Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website's users and/or members.

The Truth Behind Getting Your Resolutions to Stick

Contributed by: Kali Hassinger

It’s New Year’s Eve, which means it’s time for New Year’s Resolutions!  Typically, this is a point when we think about the big changes in store for next year.  It’s a fresh start.  Come January, gyms will be packed, diet commercials will be constant, and people will be committed to making the New Year better!  As the days roll on, however, it’s easy to lose focus and old habits tend to creep back into our lives.  Eventually, it’s difficult to remember the resolutions that you felt so passionately about a few months ago.  In some cases, it’s because we set unrealistic expectations.  Other times it’s because life gets too busy and it’s hard to remain motivated.

I know you may be expecting me to provide you with a list of suggested financial resolutions for 2016, but honestly I’m not sure that would really help you. Change isn’t as simple as writing a list or reading a blog.  Making a real change requires so much more effort, which is part of the reason why resolutions can be so easily forgotten after a few months.  There are so many pieces that go into our habits and behaviors in life, and in order to really enact change, we have to connect our goals to our actions, logic, resources, and emotions.

According to a quick Google search, here are the most common financial resolutions each year: 

• Save More

• Pay off Debt

• Spend Less

These are very modest and sensible goals; however, these are the top 3 resolutions every year.  Keep in mind, if you are planning to include one of these three resolutions, they are great goals!  But try to be specific when establishing your plan for the New Year.  Instead of “Save more,” try saving an additional $100 each month and set it up to occur automatically.  Instead of “Pay off Debt,” try determining which credit card has the highest interest rate and target that first. I am absolutely not trying to suggest that resolutions aren’t worthwhile (I make them every year, too!).  I’m only suggesting that you ask yourself, “Why do I wait until January 1st to make my life better?”

Consider your motivation behind saving more and spending less.  It’s not because we just want to see a bigger number in our accounts.  Feeling financially secure enables us to enrich our lives with new experiences.  Instead of “Save More,” connect your savings’ goal to what it truly means – building toward a future, a trip, retirement, or whatever it is that is genuinely important to you. 

Instead of making a resolution, make a change that is:

1. Attainable

2. Sustainable

3. Meaningful

If you find that you missed a monthly deposit into your savings account (or you skipped the gym for a week), don’t give up.  Life is unpredictable and our resolutions for change have to be adaptable and resilient.  Reconnect your resolution with what it means to you on a long-term and emotional level.  We don’t need January 1st to make a change, we just need resolve and determination (both are synonyms for resolution – see what I did there?!).  Have a happy and healthy 2016, everyone!

Kali Hassinger is a Registered Client Service Associate at Center for Financial Planning, Inc.

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This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of Kali Hassinger and not necessarily those of Raymond James.

How to Navigate your Inheritance

Contributed by: Nick Defenthaler, CFP®

Receiving an inheritance is something millions of Americans experience each year and with our aging population, is something many readers will experience over the next several decades.  Receiving a large sum of money (especially when it is unexpected) can change your life, so it’s important to navigate your finances properly when it occurs.  As you’re well aware, there are many different types of accounts you can inherit and each have different nuances.  Below are some of the more common items we see that impact our clients:

Life Insurance

In almost all cases, life insurance proceeds are received tax-free.  Typically it only takes several weeks for a claim to be paid out once the necessary documentation is sent to the insurance company for processing.  Often, life insurance proceeds are used for end of life expenses, debt elimination or the funds can be used to begin building an after-tax investment account to utilize both now and in the future. 

Inherited Traditional IRA or 401k

If you inherited a Traditional IRA or 401k from someone other than your spouse, you must keep this account separate from your existing personal IRA or 401k.  A certain amount each year must be withdrawn depending on your age and value of the account at the end of the year (this is known as the required minimum distribution or RMD).  However, you are always able to take out more than the RMD, although it is typically not advised.  The ability to “stretch” out distributions from an IRA or 401k over your lifetime is one of the major benefits of owning this type of account.  It’s also important to note that any funds taken out of the IRA (including the RMD) will be classified as ordinary income for the year on your tax return.   

Roth IRA

Like a Traditional IRA or 401k, a beneficiary inheriting the account must also take a required minimum distribution (RMD), however, the funds withdrawn are not taxable, making the Roth IRA one of the best types of accounts to inherit.  If distributions are stretched out over decades; the account has the potential to grow on a tax-free basis for many, many years. 

“Step-up” Cost Basis

Typically, when you inherit an after-tax investment account (non IRA, 401k, Roth IRA, etc.), the positions in the account receive what’s known as a “step-up” in cost basis which will typically help the person inheriting the account when it comes to capital gains tax.  (This blog digs into the concept of a step up in cost basis.)

Receiving an inheritance from a loved one is a deeply personal event.  So many thoughts and emotions are involved so it’s important to step back and take some time to process everything before moving forward with any major financial decision.  We encourage all of our clients to reach out to us when an inheritance is involved so we can work together to evaluate your situation, see how your financial plan is impacted, and help in any way we can during the transition. 

Nick Defenthaler, CFP® is a CERTIFIED FINANCIAL PLANNER™ at Center for Financial Planning, Inc. Nick is a member of The Center’s financial planning department and also works closely with Center clients. In addition, Nick is a frequent contributor to the firm’s blogs.

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This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Nick Defenthaler and not necessarily those of Raymond James. RMD's are generally subject to federal income tax and may be subject to state taxes. Consult your tax advisor to assess your situation. Unless certain criteria are met, Roth IRA owners must be 59½ or older and have held the IRA for five years before tax-free withdrawals are permitted. Additionally, each converted amount may be subject to its own five-year holding period. Converting a traditional IRA into a Roth IRA has tax implications. Investors should consult a tax advisor before deciding to do a conversion.

How to use your Year End Bonus

Contributed by: Matt Trujillo, CFP®

It’s that time of year. The weather is getting cooler, family is in for the holidays, and yearend bonuses are about to be paid! For some the bonus might already be spent before it is paid, but for those of you that are still looking for something to do with that money consider the following:

Here are 5 things to consider in allocating your year-end bonus:

1. Review your financial plan. Are there any changes since you last updated your financial goals? 

2. Have you accumulated any additional revolving debt throughout the year? If so consider paying off some or all of it with your bonus.

3. Are your emergency cash reserves at the appropriate level to provide for your comfort?  If not consider beefing them back up.

4. Are your insurance coverages where they need to be to cover anything unexpected?  If not, consider re-evaluating these plans.

5. Review your tax situation for the year.  Make an additional deposit to the IRS if you have income that has not yet been taxed so you don’t have to make that payment and potential penalties next April.   

If you can go through the list and don’t need to put your bonus to any of those purposes, here are some other ideas:

• If you’re lucky enough to save your bonus consider maximizing your retirement plan at work ($18,000 for 2015), including the catch-up provision if you’re over 50 ($6,000 for 2015). 

• Also, consider maximizing a ROTH IRA ($5,500 for 2015) if eligible or investing in a stock purchase program at work if one is offered. 

• Another idea is a creating/or adding to an existing 529 plan, which is a good vehicle for savings for educational goals. 

• If all of these are maximized, then consider saving in your after tax (non-retirement accounts) with diversified investments.

Matthew Trujillo, CFP®, is a Certified Financial Planner™ at Center for Financial Planning, Inc. Matt currently assists Center planners and clients, and is a contributor to Money Centered.

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This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Matt Trujillo and not necessarily those of Raymond James.