Giving Your Card a Charge

According to The Federal Reserve more than 174 million Americans have credit cards. The average credit card holder has at least three cards and carries more than $15,000 in credit card debt. At the end of 2017, U.S. consumer debt totaled $13.15 trillion, which includes mortgages, auto loans, credit cards, and student loans. For some, managing debt has become a serious problem. With this increased debt load, more and more Americans are counseled in formal “debt management” programs.

Credit cards have a big effect on the way many Americans shop and budget their expenses. Today, some people will buy an item and charge it to their credit card with the expectation that their next payroll check will be used to pay off the bill. In the meantime, other expenses may build. Thus, when the next monthly statement arrives, some individuals end up paying only the “minimum amount due.” Unfortunately, debt can build up very quickly on a credit card, especially when only minimum payments are made.

How do you manage your debt? If almost every month your statement records a balance due being carried over to next month’s bill, the following process may help you gain a better handle on your debt.

List all credit cards and debts. Begin by making a list of all your credit cards along with toll-free numbers and outstanding balances. Look at recent statements to find the interest rate you are being charged on each card. You may be using a card that is charging you 18% or 21% interest while there are better rates available. This list can also be helpful if your cards are lost or stolen.

Total your debt. Add up all of your credit card debt. Do you have any mortgage or equity loans? What about auto or school loans? You should add these payments together. What percentage of your income is used to pay the debt? Strive to set a limit at thirty-five percent of your gross income.

Consolidate. If you have several credit cards, you may want to consolidate them on one card with a lower rate of interest. Some cards offer low rates for the first several months. If you discontinue the use of any card, destroy it and cancel the account.

Equity loan. Traditionally, many people aim to have their home mortgage paid off before they enter retirement. Yet, equity loans remain popular, and such loans add on to home indebtedness. Some people have used equity loans to consolidate their debts. However, placing short-term credit card debt on a longer term equity loan may be more expensive in the long run.

Call before the due date. Sometimes, for one reason or another, it’s difficult to make a timely bill payment. You may find yourself short of cash. If this happens to you, take the initiative and contact your credit card’s customer service representative. They may be able to assist you and provide you with payment options.

Discipline. If you want to avoid the charge card debt syndrome, establish a savings account. Resolve to regularly save for your purchases first. Or, arrange a layaway plan with a business or store.

At year’s end, some companies provide cardholders with an annual printout of all purchases, charges, and payments (if your credit card company does not provide you with this service, most will do so upon request). Review the statement. How necessary were all your purchases?

Overextending credit card debt is, indeed, a national problem. However, debt management has helped many people adjust their buying patterns by adopting a more disciplined approach to shopping. With better debt management, finances become more manageable and items to be purchased become part of your budget. Contact us today to start preparing for a better financial future.

PFG Private Wealth Management, LLC is a registered investment adviser.  Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. This material and information are not intended to provide tax or legal advice.    Investments involve risk and, unless otherwise stated, are not guaranteed.  Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.  Insurance products and services are offered and sold through Perry Financial Group and individually licensed and appointed insurance agents.

Should You Leave Your IRA to a Child?

What you should know about naming a minor as an IRA beneficiary.

Can a child inherit an IRA? The answer is yes, though they cannot legally own the IRA and its invested assets. Until the child turns 18 (or 21, in some states), the inherited IRA is a custodial account, managed by an adult on behalf of the minor beneficiary.1,2

IRA owners who name minors as beneficiaries have good intentions. Their idea is to “stretch” a large Roth or traditional IRA. Distributions from the inherited IRA can be scheduled over the (long) expected lifetime of the young beneficiary, with the possibility that compounding will partly or fully offset them.2

Those good intentions may be disregarded, however. When minor IRA beneficiaries become legal adults, they have the right to do whatever they want with those IRA assets. If they want to drain the whole IRA to buy a Porsche or fund an ill-conceived start-up, they can.2

How can you have a say in what happens to the IRA assets? You could create a trust to serve as the IRA beneficiary, as an intermediate step before your heir takes possession of those assets as a young adult. In other words, you name a trust as the beneficiary of your IRA, and your child or grandchild as a beneficiary of the trust. When you have that trust in place, you have more control over what happens with the inherited IRA assets.2

The trust can dictate the how, what, and when of the income distribution. Perhaps you specify that your heir gets $10,000 annually from the trust beginning at age 30. Or, maybe you include language that mandates that your heir take distributions over their life expectancy. You can even stipulate what the money should be spent on and how it should be spent.2

A trust is not for everyone. The IRA needs to be large to warrant creating one, as the process of trust creation can cost several thousand dollars. No current-year tax break comes your way from implementing a trust, either.2

In lieu of setting up a trust, you could simply name an IRA custodian. In this case, the term “custodian” refers not to a giant investment company, but a person you know and have faith in who you authorize to make investing and distribution decisions for the IRA. One such person could be named as the custodian; another, as a successor custodian.What if you designate a minor as the beneficiary of your IRA, but fail to put a custodian in place? If there is no named custodian, or if your named custodian is unable to serve in that role, then a trip to court is in order. A parent of the child, or another party who wants guardianship over the IRA assets, will have to go to court and ask to be appointed as the IRA custodian.2

You should also recognize that the Tax Cuts & Jobs Act reshaped the “kiddie tax.” This is the federal tax on a minor’s net unearned income. Required minimum distributions (RMDs) from inherited IRAs are subject to this tax. A minor’s net unearned income is now taxed at the same rate as trust income rather than at the parents’ marginal tax rate.3,4 This is a big change. Income tax brackets for a trust or a child under age 19 are now set much lower than the brackets for single or joint filers or heads of household. A 10% rate applies for the first $2,550 of taxable income, but a 24% rate plus $255 of tax applies at $2,551; a 35% rate plus $1,839 of tax, at $9,151; a 37% rate plus $3,011.50 of tax, at $12,501 and up.3,5

While this is a negative for middle-class families seeking to leave an IRA to a child, it may be a positive for wealthy families: the new kiddie tax rules may reduce the child’s tax liability when compared with the old rules.4

One last note: if you want to leave your IRA to a minor, check to see if the brokerage holding your IRA allows a child or a grandchild as an IRA beneficiary. Some brokerages do, while others do not.1

PFG Private Wealth Management, LLC is a registered investment adviser.  Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. This material and information are not intended to provide tax or legal advice.    Investments involve risk and, unless otherwise stated, are not guaranteed.  Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.  Insurance products and services are offered and sold through Perry Financial Group and individually licensed and appointed insurance agents.
Citations.
1 – investopedia.com/articles/retirement/09/minor-as-ira-beneficiary.asp [6/19/18]
2 – kiplinger.com/article/retirement/T021-C000-S004-pass-an-ira-to-young-grandkids-with-care.html [5/17]
3 – forbes.com/sites/ashleaebeling/2018/05/08/the-kiddie-tax-grows-up/ [5/8/18]
4 – tinyurl.com/y7bonwzx [5/31/18]
5 – forbes.com/sites/kellyphillipserb/2018/03/07/new-irs-announces-2018-tax-rates-standard-deductions-exemption-amounts-and-more/ [3/7/18]

Why Having a Financial Professional Matters

What kind of role can a financial professional play for an investor? The answer: a very important one. While the value of such a relationship is hard to quantify, the intangible benefits may be significant and long lasting.

A good financial professional can help an investor interpret today’s financial climate, determine objectives, and assess progress toward those goals. Alone, an investor may be challenged to do any of this effectively. Moreover, an uncounseled investor may make self-defeating decisions. Some investors never turn to a financial professional. They concede that there might be some value in maintaining such a relationship, but they ultimately decide to go it alone. That may be a mistake. 

No investor is infallible. Investors can feel that way during a great market year, when every decision seems to work out well. In long bull markets, investors risk becoming overconfident. The big-picture narrative of Wall Street can be forgotten, along with the reality that the market has occasional bad years.  This is when irrational exuberance creeps in. A sudden market shock may lead an investor into other irrational behaviors. Perhaps stocks sink rapidly, and an investor realizes (too late) that a portfolio is over weighted in equities. Or, perhaps an investor panics during a correction, selling low only to buy high after the market rebounds.

Often, investors grow impatient and try to time the market. Poor market timing may explain this divergence: according to investment research firm DALBAR, the S&P 500 returned an average of 8.91% annually across the 20 years ending on December 31, 2015, while the average equity investor’s portfolio returned just 4.67% per year.1            

The other risk is that of financial nearsightedness. When an investor flies solo, chasing yield and “making money” too often become the top pursuits. The thinking is short term.

A good financial professional helps a committed investor and retirement saver stay on track. He or she helps the investor set a course for the long term, based on a defined investment policy and target asset allocations with an eye on major financial goals. The client’s best interest is paramount. As the investor-professional relationship unfolds, the investor begins to notice the intangible ways the professional provides value. Insight and knowledge inform investment selection and portfolio construction. The professional explains the subtleties of investment classes and how potential risk often relates to potential reward. Perhaps most importantly, the professional helps the client get past the “noise” and “buzz” of the financial markets to see what is really important to his or her financial life. 

This is the value our PFG financial professionals bring to the table. You cannot quantify it in dollar terms, but you can certainly appreciate it over time. For more information contact us here.

 

Citations.
1 – zacksim.com/heres-investors-underperform-market/ [5/22/17]
PFG Private Wealth Management, LLC (“RIA Firm”) is a registered investment adviser located in Tampa, FL. PFG Private Wealth Management, LLC may only transact business in those states in which it is registered, or qualifies for an exemption or exclusion from registration requirements. 
Accordingly, the publication of PFG Private Wealth Management, LLC’s online material should not be construed by any consumer and/or prospective client as PFG Private Wealth Management, LLC’s solicitation to effect, or attempt to effect transactions in securities, or the rendering of personalized investment advice for compensation.
This information is provided for information purposes only.  Investments involve risk and unless otherwise stated, are not guaranteed.  Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy.  This material and information are not intended to provide investment, tax, or legal advice.
Insurance products and services are offered and sold through Perry Financial Group and individually licensed and appointed insurance agents.
For more information, click here.

Bad Money Habits to Break in 2018

Do bad money habits constrain your financial progress? Many people fall into the same financial behavior patterns year after year. If you sometimes succumb to these financial tendencies, the New Year is as good an occasion as any to alter your behavior.

#1: Lending money to family & friends. You may know someone who has lent a few thousand to a sister or brother, a few hundred to an old buddy, and so on. Generosity is a virtue, but personal loans can easily transform into personal financial losses for the lender. If you must loan money to a friend or family member, mention that you will charge interest and set a repayment plan with deadlines. Better yet, don’t do it at all. If your friends or relatives can’t learn to budget, why should you bail them out?

#2: Spending more than you make. Living beyond your means, living on margin, whatever you wish to call it, it is a path toward significant debt. Wealth is seldom made by buying possessions; today’s flashy material items may become the garage sale junk of 2027. That doesn’t stop people from racking up consumer debts: a 2017 study conducted by NerdWallet determined that the average U.S. household carries $15,654 in credit card debt alone.1

#3: Saving little or nothing. Good savers build emergency funds, have money to invest and compound, and leave the stress of living paycheck-to-paycheck behind. If you can’t put extra money away, there is another way to get some: a second job. Even working 15-20 hours more per week could make a big difference. The problem of saving too little is far too common: at the end of 2017, the Department of Commerce found the U.S. personal savings rate at 2.9%, a low unseen since 2007.2

#4: Living without a budget. You may make enough money that you don’t feel you need to budget. In truth, few of us are really that wealthy. In calculating a budget, you may find opportunities for savings and detect wasteful spending.

#5: Frivolous spending. Advertisers can make us feel as if we have sudden needs; needs we must respond to, needs that can only be met via the purchase of a product. See their ploys for what they are. Think twice before spending impulsively.

#6: Not using cash often enough. No one can deny that the world runs on credit, but that doesn’t mean your household should. Pay with cash as often as your budget allows.

#7: Gambling. Remember when people had to go to Atlantic City or Nevada to play blackjack or slots? Today, behemoth casinos are as common as major airports; most metro areas seem to have one or be within an hour’s drive of one. If you don’t like smoke and crowds, you can always play the lottery. There are many glamorous ways to lose money while having “fun.” The bottom line: losing money is not fun. It takes willpower to stop gambling. If an addiction has overruled your willpower, seek help.

#8: Inadequate financial literacy. Is the financial world boring? To many people, it is. The Wall Street Journal is not exactly Rolling Stone, and The Economist is hardly light reading. You don’t have to start there, however: great, readable, and even entertaining websites filled with useful financial information abound. Reading an article per day on these websites could help you greatly increase your financial understanding if you feel it is lacking.

#9: Not contributing to IRAs or workplace retirement plans. Even with all the complaints about 401(k)s and the low annual limits on traditional and Roth IRA contributions, these retirement savings vehicles offer you remarkable wealth-building opportunities. The earlier you contribute to them, the better; the more you contribute to them, the more compounding of those invested assets you may potentially realize.

#10: Do It Yourself (DIY) retirement planning. Those who plan for retirement without the help of professionals leave themselves open to abrupt, emotional investing mistakes and tax and estate planning oversights. Another common tendency is to vastly underestimate the amount of money needed for the future. Few people have the time to amass the knowledge and skill set possessed by a financial services professional with years of experience. Instead of flirting with trial and error, see a professional for insight.

If you lack a financial plan, contact our trusted PFG Private Wealth financial professionals here to get started. Consulting with a professional may make all the difference.  

 

Citations.
1 -.bizjournals.com/boston/news/2017/12/12/five-things-you-need-to-know-today-and-why-were.html [12/12/17]
2 – reuters.com/article/us-usa-economy/strong-u-s-consumer-business-spending-bolster-growth-picture-idUSKBN1EG1J2 [12/22/17]
PFG Private Wealth Management, LLC (“RIA Firm”) is a registered investment adviser located in Tampa, FL. PFG Private Wealth Management, LLC may only transact business in those states in which it is registered, or qualifies for an exemption or exclusion from registration requirements. 
Accordingly, the publication of PFG Private Wealth Management, LLC’s online material should not be construed by any consumer and/or prospective client as PFG Private Wealth Management, LLC’s solicitation to effect, or attempt to effect transactions in securities, or the rendering of personalized investment advice for compensation.
This information is provided for information purposes only.  Investments involve risk and unless otherwise stated, are not guaranteed.  Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy.  This material and information are not intended to provide investment, tax, or legal advice.
Insurance products and services are offered and sold through Perry Financial Group and individually licensed and appointed insurance agents.
For more information, click here.

Tax Cuts and Jobs Act: 529 Plans Expanded

In December 2017, the Tax Cuts and Jobs Act, a sweeping $1.5 trillion tax-cut package, became law. College students and their parents dodged a major bullet with the legislation, as initial drafts of the bill included the elimination of Coverdell Education Savings Accounts, the Lifetime Learning Credit, and the student loan interest deduction. Also on the table in early drafts of the bill was the taxation of tuition waivers, which are used primarily by graduate students and employees of higher-education institutions. In the end, none of these provisions made it into the final legislation. What did make the final cut was the expanded use of 529 plans.

Expansion of 529 plans to allow K-12 expenses

Under the new law, the definition of a 529 plan “qualified education expense” has been expanded to include K-12 expenses. Starting in 2018, annual withdrawals of up to $10,000 per student can be made from a 529 college savings plan account for tuition expenses in connection with enrollment at an elementary or secondary public, private, or religious school (excluding home schooling). Such withdrawals are now tax-free at the federal level.

At the state level, roughly 20 states and the District of Columbia automatically update their state legislation to align with federal 529 legislation, but the remaining states will need to take legislative action to include K-12 expenses as a qualified education expense and, if applicable, extend other state tax benefits to K-12 expenses; for example a deduction for K-12 contributions.

529 account owners who are interested in making K-12 contributions or withdrawals should understand their state’s rules regarding how K-12 funds will be treated for tax purposes. In addition, account owners should check with the 529 plan administrator to determine whether a K-12 withdrawal request should be made payable to the account owner, the beneficiary, or the K-12 institution. It’s likely that 529 plans will further refine their rules to accommodate the K-12 expansion and communicate these rules to existing account owners.

Please feel free to contact us if you have any questions about the new 529 Plan provisions.

 

PFG Private Wealth Management, LLC is a Registered Investment Adviser.  Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities product, service or investment strategy.  Investments involve risk and unless otherwise stated, are not guaranteed.