MAKING MORE, GIVING LESS

You probably read that Microsoft founder Bill Gates and Berkshire Hathaway founder Warren Buffett have pledged to give at least half their wealth to charity, and have convinced 38 other billionaires to do the same. From that, you might conclude that the wealthier people are, the more generously they contribute to philanthropic causes.

As it turns out, the situation is exactly the opposite. A recent New York Times article quotes several studies, including one by Independent Sector, a nonprofit organization focused on charitable giving, which show that householders earning less than $25,000 a year gave away, on average, 4.2% of their incomes. Those earning more than $75,000 gave away an average of 2.7%. What makes this especially perplexing is the fact that higher income persons can itemize their deductions and receive a tax break, reducing the cost of their donations. Thus the personal sacrifice of giving is even larger, proportionately, for the unwealthy than for people who earn in the upper 10% of American families.

Another study cited by the article, conducted by the Center on Philanthropy at Indiana University, suggests that people of modest means may have more empathy than those who live more secure financial lives. It found that only a small percentage of charitable giving by wealthier donors was going to the needs of the poor: most of it was directed to cultural institutions and their alma maters--giving which enhanced their own status with their peers.

An article in The Economist reports on an effort to get to the bottom of this interesting disparity. It describes a research project by two professors at the University of California at Berkeley, reported in the Journal of Personality and Social Psychology. The professors asked a group of participants to place themselves on a drawing of a ladder with ten rungs on it, each representing different levels of income, education and occupational status. Then they were taken to a room and given ten "credits," which they were told would represent real money at the end of the experiment. They were asked how many they would keep for themselves and how many they would give to an invisible partner on the other side of a partition.

On average, the participants gave away 4.1 credits, without any expectation of return. But those who rated themselves at the bottom of the ladder gave away 44% more than those who placed themselves at the top. In follow-up interviews, the study participants were asked how much of their total income should be given to charity. Those who placed themselves on the higher rungs said that 2.1% of their incomes was the right number. Those at the bottom felt that 5.6% was the appropriate slice. Whether the higher status was inherited or earned seemed to make no difference in the results; the researchers hypothesized, as did the Indiana University researchers, that poorer people who experience scarcity first-hand tend to feel more compassion for others, and this increases their overall levels of generosity and helpfulness.

Sources:       NY Times article: http://www.nytimes.com/2010/08/22/magazine/22FOB-wwln-t.html  Economist article: http://www.economist.com/node/16690659

Sincerely, Bill Morrissey, CFP® and Tammy Prouty, CFP® Sound Financial Planning, Inc.

Primary Office 425 Commercial St., Ste 203 Mount Vernon, WA 98273 Phone: (360) 336-6527 info@soundfinancialplanning.net Secondary Office 650 Mullis St., Ste 101 Friday Harbor, WA 98250 (360) 378-3022 www.soundfinancialplanning.net

PLEASE READ THIS WARNING: All e-mail sent to or from this address will be received or otherwise recorded by the Sound Financial Planning, Inc. corporate e-mail system and is subject to archival, monitoring and/or review, by and/or disclosure to, someone other than the recipient. This message is intended only for the use of the person(s) ("intended recipient") to whom it is addressed. It may contain information that is privileged and confidential. If you are not the intended recipient, please contact the sender as soon as possible and delete the message without reading it or making a copy. Any dissemination, distribution, copying, or other use of this message or any of its content by any person other than the intended recipient is strictly prohibited. Sound Financial Planning, Inc. has taken precautions to screen this message for viruses, but we cannot guarantee that it is virus free nor are we responsible for any damage that may be caused by this message. Sound Financial Planning, Inc. only transacts business in states where it is properly registered or notice filed, or excluded or exempted from registration requirements. Follow-up and individualized responses that involve either the effecting or attempting to effect transactions in securities or the rendering of personalized investment advice for compensation, as the case may be, will not be made absent compliance with state investment adviser and investment adviser representative registration requirements, or an applicable exemption or exclusion. This information should not be construed as investment advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. WE WOULD LIKE TO CREDIT THIS ARTICLE'S CONTENT TO BOB VERES.

KEY TAX BREAKS RETROACTIVELY REINSTATED

The clock is ticking ... is opportunity knocking?

 

If you hurry, you might realize some nice tax breaks before 2014 runs out. Once again, Congress has acted at the eleventh hour to bring back some expired tax perks. H.R. 5771, the Tax Increase Prevention Act, was passed and signed into law by President Obama on December 19. Here is a rundown of the key tax provisions it retroactively reinstates for 2014.1

The IRA charitable rollover is back - again. Do you own a large traditional IRA? Are you age 70½ or older? By any chance, have you still not taken your Required Minimum Distribution (RMD) for 2014? If the answer to all three questions is yes, you could partly or entirely fulfill your RMD by donating up to $100,000 from that IRA to a qualified charity or non-profit organization. The gift may be made tax-free and it could help you hold your 2014 taxable income under thresholds at which you would be subject to higher Medicare premiums and taxes on your Social Security benefits. You also get the satisfaction of helping a charity. (If you have already taken your 2014 IRA RMD, you aren't allowed a "do-over;" you can't take back the RMD and make an IRA charitable rollover instead.)2,3

You have the option to deduct state & local sales tax once more. If you live in a state that doesn't tax its residents, the option to deduct state and local sales tax in lieu of state income tax is a big break. It applies again for the 2014 tax year thanks to the passage of H.R. 5771.1

Two mortgage-related deductions were revived by the new law. H.R. 5771 extends the mortgage insurance premium deduction that went away at the start of the year, and it also retroactively reinstates the tax exclusion for canceled mortgage debt - the perk that gave households a chance to exclude as much as $2 million in such debt from gross income.1

So were some key education deductions. The above-the-line tuition & fees deduction that lets parents (and students) lower taxable income amounts by up to $4,000 is back in place for 2014. So is the $250 classroom teacher expense deduction.1
 

Home upgrades could still bring you a tax break. If you know a handyman or vendor who wouldn't mind doing some work for you between now and New Year's Day, this or that upgrade might make you eligible to claim the reinstated dollar-for-dollar tax credit for qualifying energy-efficient home improvements.1

The enhanced easement incentive applies to land donations. Farmers, ranchers and other landowners have long realized tax breaks by gifting real property to land trusts for conservation. H.R. 5771 makes the recently enhanced incentive for such land gifts applicable to the 2014 tax year (it applies to conservation easements donated anywhere within TYs 2006-14). Under the enhanced incentive, a landowner can take a deduction as large as 50% of his/her income as a result of a conservation easement donation (it would be 30% otherwise). For qualifying ranchers and farmers, the permitted deduction may be as large as 100% of their incomes. The enhanced incentive also allows a donor to carry forward their deductions for 15 years as opposed to 5 years.1,4

Mass transit commuters get the size of an important tax break restored. In 2009, Congress equalized the tax breaks for employer-provided mass transit and parking benefits at $245 per month. That lasted through 2013. This year, the parking benefit was adjusted slightly upward to $250 per month, but the mass transit benefit shrunk to $130 per month. H.R. 5771 puts both the parking and mass transit benefit at $250 for TY 2014. If you put in for 100% of your transit costs via your employer's payroll deduction program, you are already in line to claim this retroactively restored benefit, which could provide as much as $576 in 2014 federal tax savings.1,5

Citations. 1 - forbes.com/sites/ashleaebeling/2014/12/19/obama-signs-2014-tax-extenders-money-in-your-pocket/ [12/19/14] 2 - chicagotribune.com/business/yourmoney/sc-cons-1225-journey-20141222-column.html [12/22/14] 3 - blogs.marketwatch.com/encore/2014/08/12/will-retirees-get-their-ira-tax-break-back/ [8/12/14] 4 - landtrustalliance.org/policy/tax-matters/campaigns/the-enhanced-easement-incentive [12/22/14] 5 - forbes.com/sites/ashleaebeling/2013/12/10/commuter-tax-break-set-to-plummet-for-2014/ [12/10/13]

Sincerely, Bill Morrissey, CFP® and Tammy Prouty, CFP® Sound Financial Planning, Inc.

Primary Office 425 Commercial St., Ste 203 Mount Vernon, WA 98273 Phone: (360) 336-6527 info@soundfinancialplanning.net Secondary Office 650 Mullis St., Ste 101 Friday Harbor, WA 98250 (360) 378-3022 www.soundfinancialplanning.net

PLEASE READ THIS WARNING: All e-mail sent to or from this address will be received or otherwise recorded by the Sound Financial Planning, Inc. corporate e-mail system and is subject to archival, monitoring and/or review, by and/or disclosure to, someone other than the recipient. This message is intended only for the use of the person(s) ("intended recipient") to whom it is addressed. It may contain information that is privileged and confidential. If you are not the intended recipient, please contact the sender as soon as possible and delete the message without reading it or making a copy. Any dissemination, distribution, copying, or other use of this message or any of its content by any person other than the intended recipient is strictly prohibited. Sound Financial Planning, Inc. has taken precautions to screen this message for viruses, but we cannot guarantee that it is virus free nor are we responsible for any damage that may be caused by this message. Sound Financial Planning, Inc. only transacts business in states where it is properly registered or notice filed, or excluded or exempted from registration requirements. Follow-up and individualized responses that involve either the effecting or attempting to effect transactions in securities or the rendering of personalized investment advice for compensation, as the case may be, will not be made absent compliance with state investment adviser and investment adviser representative registration requirements, or an applicable exemption or exclusion. This information should not be construed as investment advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. WE WOULD LIKE TO CREDIT THIS ARTICLE'S CONTENT TO MARKETING PRO, INC.

GETTING A JUMP ON TAX SEASON

What should you bring to your preparer? 

You can file your federal tax return starting January 20. IRS filing season will start right on time in 2015, and there is wisdom in filing your 1040 well before April 15. You can get it out of the way earlier, and if you e-file, you can put yourself in position for an earlier refund.1
   
What should you gather up for your CPA? If you want to save time and possibly money along with it, come to your preparer's office ready with the appropriate paperwork. If you own a business, that list includes all W-2s and 1099-MISC forms you get from clients, any 1099-INT and K-1 forms displaying interest income, your Schedule C and P&L reports, and any and all paperwork you can round up detailing your expenses - your personal expenses too, not only business costs but also any tuition, medical and miscellaneous ones. If you have made charitable contributions worth itemizing, that paperwork needs to reach your preparer. The same goes for documents detailing mortgage interest, other forms of interest paid, and any tax already paid.2
 
If you have receipt management software, your CPA will love you for using it (beats getting a manila envelope, file folder or shoebox full of receipts to sort through). If a calamity or an accident destroyed a bunch of your business records, remember that the IRS may give you a break - but your CPA needs solid proof of the misfortune to try and make a case to the IRS and get you some leniency. 
 
What are some things people too often forget to bring? Social Security numbers for new babies (and taxpayer-ID numbers and contact information for the nannies of those babies). Logs of unreimbursed mileage. Real estate stuff, too: closing letters related to a refi, receipts for real estate taxes (assuming they haven't been paid through escrow).3      
 
If you received any health insurance subsidies, you may want to wait until February. Did you pay for your own health insurance in 2014? Do you remember how you had to estimate your 2014 income when you applied for coverage? If you got a subsidy, it was based on that estimate, and an estimate is by definition inexact. Some taxpayers ended up earning more than the incomes they estimated to the exchanges, some less. That could mean one of two things: a big 2014 tax refund, or owing thousands more in taxes.4
 
If you pay for your own health coverage, the exchange at which you bought it should send you Form 1095-A by January 31. Form 1095-A will list how your household self-insures: who pays premiums, and the amount of any monthly subsidies. Your CPA can plug these details into Form 8962, which explains the breakdown on insurance, subsidies and income for your household to the IRS. If you were only self-insured for part of 2014, your CPA must note any subsidy payments by the month.4
 
In getting a jump on tax season, you can get that bothersome item off your to-do list sooner and focus on the more exciting parts of your career, business or life.

Citations. 1 - forbes.com/sites/robertwood/2014/12/29/irs-announces-2014-tax-return-filing-opens-starting-january-20-2015/ [12/29/14] 2 - outright.com/blog/what-do-you-need-to-bring-to-your-accountant-at-tax-time/ [3/18/14] 3 - foxbusiness.com/personal-finance/2014/03/18/what-documents-should-take-to-tax-preparer/ [3/18/14] 4 - money.cnn.com/2015/01/02/pf/taxes/obamacare-income-tax-subsidies/ [1/2/15] 5 - dailyfinance.com/2014/12/25/hire-cpa-prepare-taxes/ [12/25/14]

Sincerely, Bill Morrissey, CFP® and Tammy Prouty, CFP® Sound Financial Planning, Inc.

Primary Office 425 Commercial St., Ste 203 Mount Vernon, WA 98273 Phone: (360) 336-6527 info@soundfinancialplanning.net Secondary Office 650 Mullis St., Ste 101 Friday Harbor, WA 98250 (360) 378-3022 www.soundfinancialplanning.net

PLEASE READ THIS WARNING: All e-mail sent to or from this address will be received or otherwise recorded by the Sound Financial Planning, Inc. corporate e-mail system and is subject to archival, monitoring and/or review, by and/or disclosure to, someone other than the recipient. This message is intended only for the use of the person(s) ("intended recipient") to whom it is addressed. It may contain information that is privileged and confidential. If you are not the intended recipient, please contact the sender as soon as possible and delete the message without reading it or making a copy. Any dissemination, distribution, copying, or other use of this message or any of its content by any person other than the intended recipient is strictly prohibited. Sound Financial Planning, Inc. has taken precautions to screen this message for viruses, but we cannot guarantee that it is virus free nor are we responsible for any damage that may be caused by this message. Sound Financial Planning, Inc. only transacts business in states where it is properly registered or notice filed, or excluded or exempted from registration requirements. Follow-up and individualized responses that involve either the effecting or attempting to effect transactions in securities or the rendering of personalized investment advice for compensation, as the case may be, will not be made absent compliance with state investment adviser and investment adviser representative registration requirements, or an applicable exemption or exclusion. This information should not be construed as investment advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. WE WOULD LIKE TO CREDIT THIS ARTICLE'S CONTENT TO MARKETING PRO, INC.

NEW POLICIES FOR GROWTH

As the U.S. economy has slowly, steadily lumbered out of the Great Recession, the biggest drag on recovery has been housing.  Existing home sales have never recovered their 2007 levels, despite several government stimulus efforts.  Meanwhile, newly-constructed single family home sales have been hovering near levels that represented the bottom of previous recessions.  In the latest statistics, groundbreakings on new homes actually fell by 2.8% in October compared with September.

Depressed home sales-both new and used-have a negative effect on many sectors of the economy, from the materials to make the houses, appliance sales-plus, of course, the income of many thousands of construction workers, appraisers and realtors.  During healthy times, home construction and sales make up 9% of all economic activity, compared with just under 6% today.  It's remarkable that the American economy has been able to show continued growth while dragging housing activity like a ball and chain behind it.

But things may be looking up in the housing sector.  In recent weeks, Fannie Mae and Freddie Mac, the two government-backed mortgage companies that provide loan guarantees to lending institutions, have quietly adjusted their loan guarantee guidelines in ways that will make it easier for borrowers to secure loans.  Under the new rules, any loans with no missed payments for 36 consecutive months after they were first issued will be backed by the Freddie or Fannie should they default.  In the past, the agencies kept their policies unclear, and maintained that they could force lenders to buy back nonperforming loans without explanation.  The new policy will make loans less risky for lenders to extend to consumers.

Perhaps more importantly, new guidelines were issued that will make it easier for Gen Y buyers to come into the market.  Since 2008, lenders have been requiring home buyers to have near-perfect credit, and even then to pay 20% down on their home purchase.  Now, going forward, Freddie and Fannie will start backing loans where the borrower puts down just 3%-a huge relief for first-time homebuyers.  Look for these simple shifts in policy to accomplish more stimulus to the housing market-and to the U.S. economy-than any of the emergency measures passed in the wake of the economic downturn.  And, sometime in the first quarter of next year, you might see articles talking about an unexpected housing recovery and windfall GDP growth that has economists scratching their heads.

Sources:   http://useconomy.about.com/od/grossdomesticproduct/f/Real_estate_faq.htm http://useconomy.about.com/od/grossdomesticproduct/f/Real_estate_faq.htm http://www.forbes.com/sites/erincarlyle/2014/11/26/new-home-sales-sluggish-in-october-0-7-increase-reflects-new-normal/ http://money.cnn.com/2014/12/09/real_estate/mortgage-lending/index.html?iid=SF_PF_River

Sincerely, Bill Morrissey, CFP® and Tammy Prouty, CFP® Sound Financial Planning, Inc.

Primary Office 425 Commercial St., Ste 203 Mount Vernon, WA 98273 Phone: (360) 336-6527 info@soundfinancialplanning.net Secondary Office 650 Mullis St., Ste 101 Friday Harbor, WA 98250 (360) 378-3022 www.soundfinancialplanning.net

PLEASE READ THIS WARNING: All e-mail sent to or from this address will be received or otherwise recorded by the Sound Financial Planning, Inc. corporate e-mail system and is subject to archival, monitoring and/or review, by and/or disclosure to, someone other than the recipient. This message is intended only for the use of the person(s) ("intended recipient") to whom it is addressed. It may contain information that is privileged and confidential. If you are not the intended recipient, please contact the sender as soon as possible and delete the message without reading it or making a copy. Any dissemination, distribution, copying, or other use of this message or any of its content by any person other than the intended recipient is strictly prohibited. Sound Financial Planning, Inc. has taken precautions to screen this message for viruses, but we cannot guarantee that it is virus free nor are we responsible for any damage that may be caused by this message. Sound Financial Planning, Inc. only transacts business in states where it is properly registered or notice filed, or excluded or exempted from registration requirements. Follow-up and individualized responses that involve either the effecting or attempting to effect transactions in securities or the rendering of personalized investment advice for compensation, as the case may be, will not be made absent compliance with state investment adviser and investment adviser representative registration requirements, or an applicable exemption or exclusion. This information should not be construed as investment advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. WE WOULD LIKE TO CREDIT THIS ARTICLE'S CONTENT TO BOB VERES.

SHOULD WE FEAR - OR CHEER - PLUNGING OIL PRICES?

Chances are, you're celebrating today's lower gas prices.  AAA reports that the national average price of gas is $2.60 today, the lowest since December 2009.  The result: an estimated $70 billion in direct savings for U.S. consumers over the next 12 months.  At previous prices, the average American was spending about $2,600 a year on gasoline, so the 20% price decline would result in $520 more to save or spend.

It gets better.  Even though gas prices (and, therefore, the cost of driving) have plummeted, the Internal Revenue Service is raising the standard mileage rates that people can deduct on their tax return for business travel, from 56 cents in 2014 to 57.5 cents per business mile driven next year.

Only the investment markets seem to think that cycling an extra $70 billion into the U.S. economy is a bad thing.  This past week, large cap stocks, represented by the S&P 500 index, saw their prices fall by 3.5%-their biggest drop since May 2012. Why?  The only possible explanation is that rapid Wall Street traders believe that lower oil prices will harm the economies of America's trading partners, and therefore impact the U.S. economy indirectly.

So let's take a closer look.  While U.S. consumers are cheering the decline in oil prices, and non-energy producing nations like Japan and countries in the Eurozone are seeing a boost in their economies, who's NOT celebrating?

As it turns out, some of the biggest losers are American domestic shale oil producers, who basically break even when oil prices are at their current $50-$60 a barrel levels.  Any further drop in prices would slow down domestic energy production, and probably create a floor that would keep prices from falling much further.

Another big loser is the socialist government in Venezuela (remember Hugo Chavez?), which needs oil prices above $162 a barrel to pay for all of its social programs.  You can also sympathize with Iran, which reportedly needs oil prices to move up to $135 barrel to stay in the black, due to continuing sanctions from the world community over its nuclear program, and the high cost of supporting Hezbollah and its own military ventures in the Middle East.

The biggest loser is probably Russia, which requires oil prices of at least $100 a barrel for its budget to withstand international sanctions and finance its own military adventures against neighboring nations.  Economists are projecting that Russia will fall into a steep recession next year, when GDP could decline as much as 6%.  The nation is experiencing what economists call "capital outflows" of $125 billion a year-a fancy way of saying that wealthy Russians are taking money out of Russian banks and either investing abroad or putting their rubles in banks located in more stable foreign jurisdictions.  And in the process, they are exchanging their rubles for local currency, as a way to protect against the recent free-fall in Russia's currency.  Bloomberg News recently published a graphic which many Americans will find entertaining, but which is probably not happy news for Russian President Vladimir Putin.

It's interesting that the markets seem to be worrying about low oil prices when the economies with the most to lose are not just not major trading partners, but actual political enemies of U.S. interests. Cheaper oil will eventually be regarded as a plus for our economic-and political-interests, but the downturn suggests that Wall Street traders are hair-trigger ready to be spooked by anything they regard as unusual. 

Sources:        http://www.marketwatch.com/story/5-countries-that-will-be-the-biggest-losers-from-oils-slide-2014-11-20?page=2 http://blogs.piie.com/realtime/?p=4644 http://www.accountingtoday.com/news/irs-watch/irs-raises-standard-mileage-rate-for-businesses-72990-1.html?ET=webcpa:e3476082:a:&st=email&utm_content=buffer4179f&utm_medium=social&utm_source=twitter.com&utm_campaign=buffer http://www.forbes.com/sites/northwesternmutual/2014/11/27/lower-oil-prices-give-a-gift-to-consumers/

Sincerely, Bill Morrissey, CFP® and Tammy Prouty, CFP® Sound Financial Planning, Inc.

Primary Office 425 Commercial St., Ste 203 Mount Vernon, WA 98273 Phone: (360) 336-6527 info@soundfinancialplanning.net Secondary Office 650 Mullis St., Ste 101 Friday Harbor, WA 98250 (360) 378-3022 www.soundfinancialplanning.net

PLEASE READ THIS WARNING: All e-mail sent to or from this address will be received or otherwise recorded by the Sound Financial Planning, Inc. corporate e-mail system and is subject to archival, monitoring and/or review, by and/or disclosure to, someone other than the recipient. This message is intended only for the use of the person(s) ("intended recipient") to whom it is addressed. It may contain information that is privileged and confidential. If you are not the intended recipient, please contact the sender as soon as possible and delete the message without reading it or making a copy. Any dissemination, distribution, copying, or other use of this message or any of its content by any person other than the intended recipient is strictly prohibited. Sound Financial Planning, Inc. has taken precautions to screen this message for viruses, but we cannot guarantee that it is virus free nor are we responsible for any damage that may be caused by this message. Sound Financial Planning, Inc. only transacts business in states where it is properly registered or notice filed, or excluded or exempted from registration requirements. Follow-up and individualized responses that involve either the effecting or attempting to effect transactions in securities or the rendering of personalized investment advice for compensation, as the case may be, will not be made absent compliance with state investment adviser and investment adviser representative registration requirements, or an applicable exemption or exclusion. This information should not be construed as investment advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. WE WOULD LIKE TO CREDIT THIS ARTICLE'S CONTENT TO BOB VERES.

YOUR YEAR-END FINANCIAL CHECKLIST

Seven aspects of your financial life to review as the year draws to a close.

                       

The end of a year makes us think about last-minute things we need to address and good habits we want to start keeping. To that end, here are seven aspects of your financial life to think about as this year leads into the next...

  

Your investments. Review your approach to investing and make sure it suits your objectives. Look over your portfolio positions and revisit your asset allocation.

Your retirement planning strategy. Does it seem as practical as it did a few years ago? Are you able to max out contributions to IRAs and workplace retirement plans like 401(k)s? Is it time to make catch-up contributions? Finally, consider Roth IRA conversion scenarios, and whether the potential tax-free retirement distributions tomorrow seem worth the taxes you may incur today. Be sure to take your Required Minimum Distribution (RMD) from your traditional IRA(s) by December 31. If you don't, the IRS will assess a penalty of 50% of the RMD amount on top of the taxes you will already pay on that income. (While you can postpone your very first IRA RMD until April 1, 2015, that forces you into taking two RMDs next year, both taxable events.)1

  

Your tax situation. How many potential credits and/or deductions can you and your accountant find before the year ends? Have your CPA craft a year-end projection including Alternative Minimum Tax (AMT). The rise in the top marginal tax bracket for 2014 made fewer high-earning executives and business owners subject to the AMT, as their ordinary income tax liabilities grew. That calls for a fresh look at accelerated depreciation, R&D credits, the Work Opportunity Tax Credit, incentive stock options and certain types of tax-advantaged investments.2

  

Review any sales of appreciated property and both realized and unrealized losses and gains. Take a look back at last year's loss carry-forwards. If you've sold securities, gather up cost-basis information. Look for any transactions that could potentially enhance your circumstances.

Your charitable gifting goals. Plan charitable contributions or contributions to education accounts, and make any desired cash gifts to family members. The annual federal gift tax exclusion is $14,000 per individual for 2014 and 2015, meaning a taxpayer can gift as much as $14,000 to as many individuals as you like in each year without tax consequences. A married couple can gift up to $28,000 tax-free to as many individuals as they prefer. The gifts do count against the lifetime estate tax exemption amount, which climbs to $5.43 million per individual and $10.86 per married couple for 2015.3

    

You could also gift appreciated stocks to a charity. If you have owned them for more than a year, you can deduct 100% of their fair market value and legally avoid capital gains tax you would normally incur from selling them.4

Besides outright gifts, you can plan other financial moves on behalf of your family - you can create and fund trusts, for example. The end of the year is a good time to review any trusts you have in place.

Your life insurance coverage. Are your policies and beneficiaries up-to-date? Review premium costs, beneficiaries, and any and all life events that may have altered your coverage needs.

Speaking of life events...did you happen to get married or divorced in 2014?Did you move or change jobs?Buy a home or business? Did you lose a family member, or see a severe illness or ailment affect a loved one? Did you reach the point at which Mom or Dad needed assisted living? Was there a new addition to your family this year? Did you receive an inheritance or a gift? All of these circumstances can have a financial impact on your life, and even the way you invest and plan for retirement and wind down your career or business. They are worth discussing with the financial or tax professional you know and trust.

 

Lastly, did you reach any of these financially important ages in 2014? If so, act accordingly.

Did you turn 70½ this year? If so, you must now take Required Minimum Distributions (RMDs) from your IRA(s).

Did you turn 62 this year? If so, you're now eligible to apply for Social Security benefits.

Did you turn 59½ this year? If so, you may take IRA distributions without a 10% penalty.

Did you turn 55 this year? If so, and you retired during this year, you may now take distributions from your 401(k) account without penalty.

Did you turn 50 this year? If so, "catch-up" contributions may now be made to IRAs (and certain qualified retirement plans).1,5,6

The end of the year is a key time to review your financial well-being. If you feel you need to address any of the items above, please feel free to give me a call.

Citations. 1 - irs.gov/Retirement-Plans/RMD-Comparison-Chart-%28IRAs-vs.-Defined-Contribution-Plans%29 [4/30/14] 2 - tinyurl.com/o7wqk7z [3/27/14] 3 - forbes.com/sites/ashleaebeling/2014/10/30/irs-announces-2015-estate-and-gift-tax-limits/ [10/30/14] 4 - philanthropy.com/article/Donors-Often-Overlook-Benefits/148561/ [8/29/14] 5 - nolo.com/legal-encyclopedia/getting-retirement-money-early-without-30168.html [12/2/14] 6 - turbotax.intuit.com/tax-tools/tax-tips/Tax-Planning-and-Checklists/Tax-Tips-After-January-1--2015/INF12070.html [12/2/14]

Sincerely, Bill Morrissey, CFP® and Tammy Prouty, CFP® Sound Financial Planning, Inc.

Primary Office 425 Commercial St., Ste 203 Mount Vernon, WA 98273 Phone: (360) 336-6527 info@soundfinancialplanning.net Secondary Office 650 Mullis St., Ste 101 Friday Harbor, WA 98250 (360) 378-3022 www.soundfinancialplanning.net

PLEASE READ THIS WARNING: All e-mail sent to or from this address will be received or otherwise recorded by the Sound Financial Planning, Inc. corporate e-mail system and is subject to archival, monitoring and/or review, by and/or disclosure to, someone other than the recipient. This message is intended only for the use of the person(s) ("intended recipient") to whom it is addressed. It may contain information that is privileged and confidential. If you are not the intended recipient, please contact the sender as soon as possible and delete the message without reading it or making a copy. Any dissemination, distribution, copying, or other use of this message or any of its content by any person other than the intended recipient is strictly prohibited. Sound Financial Planning, Inc. has taken precautions to screen this message for viruses, but we cannot guarantee that it is virus free nor are we responsible for any damage that may be caused by this message. Sound Financial Planning, Inc. only transacts business in states where it is properly registered or notice filed, or excluded or exempted from registration requirements. Follow-up and individualized responses that involve either the effecting or attempting to effect transactions in securities or the rendering of personalized investment advice for compensation, as the case may be, will not be made absent compliance with state investment adviser and investment adviser representative registration requirements, or an applicable exemption or exclusion. This information should not be construed as investment advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. WE WOULD LIKE TO CREDIT THIS ARTICLE'S CONTENT TO MARKETING PRO INC.

ACCENTUATING THE POSITIVE

Retiring? Saving for retirement? Here's some good news.

Are 90% of articles written about retirement pessimistic? Sometimes it seems that way. Repeatedly, we are reminded that most baby boomers haven't saved enough for the future.

There's no denying this, but the media is giving short shrift to other, more positive developments that may be improving the economic and retirement outlook for many Americans. Here are a few worth noting.

401(k) savings have rebounded tremendously from Great Recession lows. For older savers, the recovery is especially pronounced. Fidelity just released its latest Quarterly Retirement Snapshot. Looking over account data from its retirement plans, it says that the average Q3 401(k) balance for employees who had contributed to their accounts for at least ten straight years was $241,800, compared to just $130,700 in Q1 2009 when the recession was ending. That's an 85% increase.1,2

Data from Principal Financial Group points out similar gains. Earlier this year, it noted that the average balance in its 401(k) plans had risen nearly 70% since the market trough of 2008. Also, new research from the Investment Company Institute shows that if an employee made consistent per-paycheck contributions to a 401(k) during 2007-12, the balance on such accounts increased an average of 6.8% annually (and this is not even considering the great year the market had in 2013).3,4

Incomes finally seem to be rising. This recovery has been marked by a lack of wage growth - a factor that has made it shallower than many analysts expected. That may be changing at last, as the Census Bureau's employment cost index increased 0.7% for Q2. That is solid, in fact it is the biggest quarterly boost seen in six years.4

Hiring has picked up in some crucial industries. ADP's latest employment change report shows October payrolls swelling by 28,000 workers in the construction industry and 15,000 in the factory sector. There were 5,000 new hires at businesses with more than 500 workers, 102,000 new hires at small firms and 122,000 fresh hires at medium-sized companies.5

Americans aren't living on margin as much as they once were. In 2008, total U.S. credit card debt reached $866 billion. In 2013, that fell to $660 billion.4

Fewer Americans are letting consumer debt linger. The Federal Reserve Bank of New York says the latest debt delinquency rates are the lowest in more than six years - the 90-day-plus delinquency rate was at 4.8% in Q2. During 2010, it reached 8.7%. Additionally, overall household debt declined $18 billion in the second quarter, and mortgage debt decreased $69 billion.4,6

Medicare spending didn't rise in the last federal budget year. It was flat for FY 2012-13 and while that may not hold true in successive years, it is certainly interesting. According to Medicare actuaries, fewer Medicare recipients than forecast went to hospitals for care during that budget year, and many of those who did used cheaper services. (Per-beneficiary Part A spending fell for a second consecutive year in FY 2012-13; enrollment in Part C plans expanded.)7

This lack of an annual spending increase led Medicare's trustees to adjust their forecast of when Medicare's main trust fund might run dry. It is now projected to do so in 2030, four years later than previously estimated.7

Baby boomers may be in for a more enjoyable retirement than the media assumes. This summer, T. Rowe Price surveyed recent U.S. retirees and found that 89% were somewhat or very satisfied with their quality of life. This level of retirement satisfaction surfaced even though the average respondent was now living on 66% of his or her pre-retirement income, with 85% of respondents saying that they didn't require as much money as they once did to maintain their standard of living.8

There you have it: a roundup of good news about the economy and the outlook for retirement. Stay positive and plan actively for your future.

Citations. 1 - istockanalyst.com/business/news/7063858/fidelity-s-quarterly-retirement-snapshot-average-balances-increase-year-over-year-record-contributions [4/29/14] 2 - blogs.marketwatch.com/encore/2014/04/29/older-savers-pull-ahead-in-the-401k-race/tab/print/ [4/29/14] 3 - blogs.marketwatch.com/encore/2014/06/03/survey-401k-savings-rates-spiked-in-2013/ [6/3/14] 4 - bloomberg.com/news/2014-08-05/how-to-stay-optimistic-about-retirement-read-this-article.html [8/5/14] 5 - thestreet.com/story/12941709/1/adp-report-shows-hiring-picking-up-job-growth-in-right-places.html/ [11/5/14] 6 - newyorkfed.org/microeconomics/hhdc.html#2014/q2 [11/4/14] 7 - bloomberg.com/news/2014-07-28/medicare-s-financial-condition-improves-on-reduced-costs.html [7/28/14] 8 - news.investors.com/investing/073014-711065-people-adjust-to-lower-income-in-retirement.htm [7/30/14]

Sincerely, Bill Morrissey, CFP® and Tammy Prouty, CFP® Sound Financial Planning, Inc.

Primary Office 425 Commercial St., Ste 203 Mount Vernon, WA 98273 Phone: (360) 336-6527 info@soundfinancialplanning.net Secondary Office 650 Mullis St., Ste 101 Friday Harbor, WA 98250 (360) 378-3022 www.soundfinancialplanning.net

 

PLEASE READ THIS WARNING: All e-mail sent to or from this address will be received or otherwise recorded by the Sound Financial Planning, Inc. corporate e-mail system and is subject to archival, monitoring and/or review, by and/or disclosure to, someone other than the recipient. This message is intended only for the use of the person(s) ("intended recipient") to whom it is addressed. It may contain information that is privileged and confidential. If you are not the intended recipient, please contact the sender as soon as possible and delete the message without reading it or making a copy. Any dissemination, distribution, copying, or other use of this message or any of its content by any person other than the intended recipient is strictly prohibited. Sound Financial Planning, Inc. has taken precautions to screen this message for viruses, but we cannot guarantee that it is virus free nor are we responsible for any damage that may be caused by this message. Sound Financial Planning, Inc. only transacts business in states where it is properly registered or notice filed, or excluded or exempted from registration requirements. Follow-up and individualized responses that involve either the effecting or attempting to effect transactions in securities or the rendering of personalized investment advice for compensation, as the case may be, will not be made absent compliance with state investment adviser and investment adviser representative registration requirements, or an applicable exemption or exclusion. This information should not be construed as investment advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. WE WOULD LIKE TO CREDIT THIS ARTICLE'S CONTENT TO MARKETING PRO INC.