There are many ways to share your wealth. Following IRS rules can even give you a nice reduction in your annual tax bill. Tax planning allows you to give more to your favorite charity and maximize tax deductions.

1. Cash/Check donations – always remember to keep good records of your donations and get receipts. Canceled checks are best backed up by a letter from the organization.

2. Non-Cash donations – (clothing, household items, etc.) – again remember to keep good records of your donations and get receipts when possible. Your deduction is typically 25-30% of the Fair Market Value of the items donated.

3. Charitable Giving accounts (Donor Advised Funds) – DAF’s allow you to donate securities & receive a current year tax deduction for the current market value. The funds are invested & available to make grants to any qualified charity (501(c) (3) organization. Charitable Giving account offers benefits such as:
   • One consolidated tax receipt.
   • Save taxes on appreciated securities.
   • Receive a tax deduction when taxable income is high.

4. RMD (Required Minimum Distribution) at age 70 ½ and beyond from your IRA account. You can fulfil your RMD & be generous at the same time by having a check sent directly from your IRA account to a qualified 501(c)(3) organization. The benefits of this type of donation are:
   • RMD’s are added to your gross income. Donating directly to a charity counts toward annual RMD & doesn’t increase Adjusted Gross Income resulting in lower taxes.
   • Doing this could reduce the amount of taxable Social Security. RMD’s are added to your AGI which could possibly make some of your Social Security income taxable.
   • Reducing your cost of Medicare Parts B & D –Medicare premiums are based on your AGI.
   • Tax deduction if your standard deduction is higher than itemized deductions
   • Overcoming the 50% limit on charitable contributions
   • Shrink your Net Investment Income Tax – (3.8% NIIT on investment income when your AGI is greater than $200,000 ($250,000 for joint returns). RMD’s might move your AGI above these amounts.

You can review 501(c)(3) Charitable Organizations @ http://www.charitynavigator.org/.

Here you can find star ratings, tax status, contact info, financial information, etc.

A little tax planning can stretch the amount you give to charity and reduce your tax bill. Tax planning is a year round event. Not something to think about once a year when your taxes are prepared.

Today, as a society we tend to view financial success in rather cut and dry ways.  A few things we tend to get hung up on when we try to achieve financial success include: a big house, fancy cars, flashy jewelry, or the highest paying job.  Are these the things that are really going to make you happy in the long run?  Before you decide whether or not you are financially successful, take a step back.  Define your own personal version of success.  Then see what you can do to achieve it.  You may be surprised to realize that you are more successful than you think.

Listed below are ten factors we at Lighthouse Financial Advisors feel can help you achieve the ultimate goal of financial freedom.

1. Health: Your health and the health of your loved ones are the most important part of success.  With disease, illness, and uncontrollable health concerns out there, simply living a healthy, long life is a huge success in itself.
2. Invest in YOU: Spending your time on individual passion projects can lead to true financial success.  When you make the commitment to invest in yourself, the return on investment will begin to multiply exponentially over time.
3. How Much You Save: Saving money is worth the effort.  It gives you peace of mind, it gives you options, and the more you save, the easier it becomes to accumulate additional savings.
   • Always have an Emergency Reserve!! We recommend at least 3 to 6 months of expenses saved somewhere that’s both easy to access and safe.
4. Take Full Advantage of Retirement Plans: Retirement plans are a valuable benefit that impacts the present and future lives of employees.  You can receive significant tax savings for funding your “Tax-Deferred” retirement accounts.
5. Minimize Taxes Paid: Paying taxes is unavoidable, but we feel that ample opportunities do exist to help achieve a lower tax bill.  At LFA minimizing taxes paid is always a top priority.
6. Diversification of Assets: Diversification is a technique that reduces risk by allocating investments among various financial instruments, industries and other categories.  It is an important component of reaching long-term financial goals while minimizing your risk.
7. Healthy Relationships: Learning how to approach, attain, and maximize the different types of relationships in your life is crucial to success.  Having and maintaining healthy, happy relationships will bolster your quality of life and give you renewed meaning.
8. Live Within Your Means: One of the first steps to find out if you’re living within your means is to create a budget.  Once you’ve a clear understanding of your current budget, your challenge is to find places where you can spend less and earn more in order to achieve your financial goals.
9. Avoid Bad Habits & Horrible Mistakes: Everyone makes mistakes in their lives.  There are a lot of financial habits that can lead an individual into debt.  We want to assist in helping you avoid the pitfalls looming out there in the financial world.
10. Investment Rate of Return: Consistent investing over a long period of time can be an effective strategy to accumulate wealth.  Even the smallest deposits can add up over time.

Profound misrepresentation is just one of the many ways the financial services field misleads customers with language.

Language matters. Most financial services practitioners call themselves financial planners or financial advisers. But in reality, many, if not most, are salespeople selling products to earn commissions.

Why do they call themselves financial planners or financial advisers? Because that’s what customers want and need. Unfortunately, that’s not what most customers are getting.

This profound misrepresentation is just one of the many ways the financial services field misleads customers with language. If we want the public to be more trusting of us, we need to start by ridding ourselves of these highly misleading labels.

Even practitioners who don’t sell product typically call themselves financial planners or financial advisers. In fact many, if not most, should be calling themselves investment managers. Other than managing portfolios, how much retirement planning, estate planning, tax planning or other financial planning, or advising, are they really doing?

‘ROBO-ADVISER’ IS INCORRECT

So when the advent of automated portfolio management came around, the label “robo-adviser” was coined. The fact that no “advising” is going on here didn’t faze a field that’s entirely too comfortable with false labels. Robo-investing is the correct term. Have we become so numb to the misuse of labels in financial planning that when this new service is dubbed with the highly misleading label of robo-adviser we don’t even notice it?

Another highly misleading label is “fee-based.” As a fee-only, comprehensive financial planner, when I ask prospective clients how and why they chose me, many of them say it’s because I’m fee-based. These are people who have done their homework and have concluded that it’s in their best interest to hire someone who is not a salesperson pushing product, but rather an unbiased professional whose compensation does not in any way depend on how and where clients ultimately decide to invest their life savings. Yet based on their research, they still don’t understand the very important distinction between fee-only and fee-based.

I urge the profession, if it aspires to be a profession, to adopt the term “fee-and-commission based” for practitioners who charge both. Further, financial practitioners should be required to disclose the percentages of their income derived from fees and from commissions. And to avoid confusion, use of the term fee-based should be prohibited.

Do I think these recommendations will be adopted? No, I’m not naïve. Financial interests trump the truth. And I’m not talking about the financial interests of the client here.

The financial planning profession (and I will call it a profession for now because I hope to appeal to the better angels for change) is fraught with deception and outright thievery. Just follow the news and you’ll see one episode after another. Large firms are fined monthly. Trusted financial advisers, including some very prominent fee-only advisers, too frequently violate their clients’ fiduciary trust. There are lots of reasons for the public to be skeptical about our honesty and integrity.

STAIN ON THE PROFESSION

Authentic labels mean what they say and say what they mean. Precision in labels is a sign of honesty and integrity. Deceptive labels designed to tell a customer that a practitioner is something he or she is not are a stain on the profession that must be cleansed in order to establish trust with the consumer.

Let’s not give the public yet another reason to mistrust us. When the first thing someone encounters about our profession is a false and misleading label defining the basic structure of our business, it only adds to their sense of mistrust in who we are as an industry and what we do.

I watch with fascination the debate about adopting a fiduciary standard for brokers and salespeople. Does calling salespeople fiduciaries make them fiduciaries? I don’t think so. It would just embed another deceptive label in a field already peppered with false labels.

Feb 7, 2016

Written by our friend David M. Zolt

David M. Zolt is a fee-only financial planner and president of Westlake Advisors, a registered investment adviser in Westlake, Ohio. Contact him at david@RetireSoft.com.

“Back-To-School” is a good time of the year to think about saving for your children’s and grandchildren’s education. 

There are several types of education accounts that you can choose from. We can help you plan education savings that may be right for you!

Here are some facts about the different accounts:

529 Accounts – What is a 529 plan?

A 529 plan is a tax-advantaged savings plan designed to encourage saving for future college costs. 529 plans, legally known as “qualified tuition plans,” are sponsored by states, state agencies, or educational institutions and are authorized by Section 529 of the Internal Revenue Code.

• An account holder establishes a 529 account for a beneficiary (student) for the purpose of paying the beneficiary’s eligible college expenses (tuition, room & board, mandatory fees, books and computer, if required by school).
• Several Investment options are available (stocks, mutual funds, bond mutual funds, and money market funds, as well as, age-based portfolios that automatically shift toward more conservative investments as the beneficiary gets closer to college age).
• Withdrawals from college savings plans can generally be used at any college or university for qualified expenses.
• The beneficiary of the account can be changed or monies transferred to another beneficiary, should the original beneficiary not need the funds or if they do not meet the requirements for withdrawal.
• Tax benefits – Earnings in 529 plans are not subject to federal tax, and in most cases, state tax, so long as you use withdrawals for eligible college expenses.
• If withdrawals are made and are not used for an eligible college expense, the earnings of that withdrawal will be subject to income tax and an additional 10% federal tax penalty.
• Some states offer state income tax or other benefits for investing in a 529 plan. But you may only be eligible for these benefits if you participate in a 529 plan sponsored by your state of residence. Just a few states allow residents to deduct contributions toany 529 plan from state income tax returns.

Coverdell ESA Accounts – What is an ESA account?

A Coverdell ESA is a trust or custodial account created for the purpose of paying the qualified education expenses (higher education expenses, but also to elementary and secondary education expenses) for a designated beneficiary.

• When an account is established, the designated beneficiary must be under age 18 or a special needs beneficiary.
• Contributions to a Coverdell ESA are not deductible, but amounts deposited in the account grow tax free until distributed.
• Contributions can be made to an ESA account by any individual who has a modified adjusted gross income for the year less than $110,000 ($220,000 in the case of a joint return).
• Contribution must be made in cash.
• Contributions are limited to $2,000 per year.
• There is no limit on the number of separate Coverdell ESAs that can be established for a designated beneficiary. However, total contributions for the beneficiary in any year cannot be more than $2,000, no matter how many accounts have been established.
• Generally, distributions are tax free if they are not more than the beneficiary’s adjusted qualified education expenses for the year.
• Any amount distributed from a Coverdell ESA to a beneficiary is not taxable if used for qualified expenses or if it is rolled over to another Coverdell ESA for the benefit of the same beneficiary or a member of the beneficiary’s family (including the beneficiary’s spouse) who is under age 30. This age limitation does not apply if the new beneficiary is a special needs beneficiary.
• The balance in the account generally must be distributed within 30 days after the earlier of the following events.
  • The beneficiary reaches age 30, unless the beneficiary is a special needs beneficiary.
  • The beneficiary’s death.

UTMA Accounts – What is a UTMA Account?

A UTMA (Uniform Transfer to Minor’s Act) account is a custodial account which allows you to invest in the child’s name taking advantage of the child’s potentially lower tax rate.

• These accounts can be used for any expense for the benefit of the child (health, education or welfare).
• UGMA and UTMA accounts are not specifically designed to provide financing for college, however many investors use them for this purpose because the assets become available to the minor when he or she reaches the age of majority specified under the state’s UTMA law (varies from 18-25).
• A donor’s income taxes may be lowered by transferring income-producing assets or appreciated securities to a child, who is likely to be in a lower tax bracket.
• Interest, dividends and other unearned income from UTMA accounts are taxed at Child’s Investment Income (Kiddie Tax) rate.  The first $2,000 of interest, dividends and other unearned income in the UTMA account is tax-free.  The second $2,000 of unearned income is taxed at the Child’s rate.  Unearned income over $4,000 (in a UTMA account) is then taxed at the parents’ marginal tax rate.
• Anyone can contribute (or “gift”) to a child’s UTMA account (within legal “gifting” limits).

Time is one of our greatest assets, yet it often seemingly passes through our lives without much thought or appreciation. One aspect of this is how little time we spend planning for our futures.  Americans on average spend more time buying a flat screen TV than planning for an IRA investment for their retirement years according to an annual survey by TIAA-CREF.  While this is just one example, we certainly find it very true that most people spend more time planning a week vacation than they do retirement planning.

The average amount of time reviewing and preparing taxes ranges from 10-16 hours.  They are so time intensive for two reasons:

1. The tax code and forms are complex.  And so is every other aspect of financial planning!
2. You are required to file your taxes.  Imagine if you were required to spend even an equal amount of time on your personal financial planning.

This would be a huge step forward for many people, but how far would you get? Could you….

• Understand how human emotions trip up the best laid plans?
• Select an investment allocation and develop a long term strategy during difficult times?
• Ensure you’re saving & investing properly for your financial independence?
• Set financial goals and quantify how to achieve them?
• Ensure you’re properly insured, but not spending more than necessary?
• Not just prepare your taxes, but continuously be tax planning?

The time it would take to replicate the experience and knowledge of a dedicated team of comprehensive financial planners & CPA’s  would be daunting…that’s why most don’t bother.  It is our full time job and passion; let us save you the time of tax planning and prep, and redirect that time towards meaningful long term planning.