Whether we think about it or not, most of us are likely investing in real estate just by owning a home. Even though we use our home for shelter, it is part of our investment portfolio, net worth, and likely our estate planning. That said, our investment in our home is just one way to invest in real estate.

Why invest in real estate?

Real estate investments are a great way to further diversify your stocks, bonds, and other types of investments. Real estate values can change on different cycles to stocks and bonds, making it a great diversification to your total portfolio.

How can I invest in real estate?

There are lots of ways to invest in real estate directly. Here are some quick ideas:

If you have the ability/desire, you can buy a vacation / rental home. Depending on the location, you can generate reliable income that can not only pay for expenses but also reap a profit for you as well.

It is not uncommon for first time home buyers to buy a duplex as their first home: living in one unit and renting out the 2nd unit. That 2nd unit rent can pay for the mortgage on the entire duplex!

Partner with a general contractor or handyman and invest in multiple units that can be rented out to both cover costs (including loan payments, repairs, etc.) and potentially some profit. All of these require you (and/or a partner) to be able to either take on significant debt OR have liquid funds at the ready to make these large purchases.

What if you don’t want to own physical property, but still want to invest in real estate?

There are investment vehicles where you do NOT have to own any physical real estate, and still diversify with real estate investments:

Real Estate Investment Trusts (REIT’s) come in many different flavors. REIT’s are investment vehicles that invest directly in real estate through properties or mortgages. REIT’s pay out dividends based on their taxable profits, as required by law. We buy shares of these just like shares of any company.

Real Estate Mutual Funds are mutual funds that invest in REIT’s, real-estate stocks and/or indices. These mutual funds are bought and sold just like any mutual fund.

Home Builder / Construction Funds are mutual or exchange traded funds that invest in companies that build homes and/or commercial properties. They also have holdings for wood, steel and various hardware components that are needed to build new properties. While technically not real estate, they closely track real estate trends from an investment perspective. “NAIL” is an ETF example of this.

The advantage with these options is that you can buy and sell like any other stock or mutual fund. No large cash infusion or taking on debt is needed for these options.

If you’d like to discuss any of these options or discuss what portion of your portfolio you might consider for real estate investments, please let me know!

What IS the question? When should I …? or Will I have enough to …? or something else?

So many of us ask ourselves this question: “Will I have enough to retire?” This question is more than a question, it is really a significant worry for many. We are really worried that we will NOT have enough to retire.

Then there are those of us who ask the question: “When can I retire?” This question can also morph into a worry, but most of the time we are questioning how long we must work full time to save enough to retire comfortably.

There are variations on these themes of course. Some of us combine the questions into something like: “When will I have enough to retire?”.

Let me reword the question to get to the heart of the matter: “When will I be able to retire based on my savings, investments, and spending needs?”

I could go on. The point is that all these questions are valid, important, and need to be honestly answered. In order to get a good understanding of your readiness to stop full-time work, many facets of this “retirement questioning” need to be asked.

Personally, I think the questions that need to be asked and answered, all have to do with what you plan to do WHEN you decide to retire. What will you do with your free time? Are you going to play golf every day? Are you going to spend your free time with those grandbabies? Are you going to travel 6 months of the year? Are you going to volunteer your free time to your church or local charity? Are you going to build that dream vacation home? Maybe you will start a business based on your passions or interests? Maybe a combination of all the above?

The answers to these questions help to define the vision you have for your retirement. This is important to do years BEFORE you retire. Why? Because it is in answering these questions that you can start building a financial needs assessment of the income you will need to fund those plans and dreams. You need to have a feel for your spending projections during retirement in order to know if you are saving enough and investing properly. You need to have the end in mind in order to know “when will I have enough to retire”.

Of course, you can change your mind along the way. But seriously trying to define that vision of retirement will help you know if you are on a path that is potentially successful or if you need to adjust. Either adjust your savings and investing or adjust your retirement expectations. Either way, it is peace of mind.

Let me know if I can help you build such a plan! I look forward to brainstorming and thinking this through with you!

We all wish investing in the markets was easier than it is. Our lives are complicated enough. Deciding which investments to makeover our lifetimes, with our priorities changing, and the markets changing makes for a real challenge. So what about “Target-date” investments?

So, what is a “target-date” investment? Essentially, they are mutual funds or exchange-traded funds (ETF’s) that are actively managed to grow your money in a way that is optimized based on when you will need the money. Generally, the “target date” lines up with your retirement date, but it might also coincide with a college tuition need or any other future major expense.

As an example, let’s say you envision retiring around the year 2040, 19 years from now. You would find a 2040 or 2045 Target Date fund (many investment companies offer this directly or you can get through most 401K’s). Between now and 2040, the fund’s investment team will manage the portfolio of stocks, bonds/fixed income, and cash. They attempt to trade-off risk with growth. In other words, the longer time frame they have, the more risk (stocks) will be built into the portfolio of investment items. Said differently, the closer to the target date, the less risk will be built into the investments. More fixed income and cash will be held closer to the target date. Essentially, target-date investments charge a fee to attempt to manage risk for you depending on the number of years you have to invest. You, supposedly, don’t have to worry about it until you need the money. Sounds easy.

Target-date funds are easy for the investor. Over the years, you don’t have to worry about manually changing the investment mix such that you are decreasing risk the closer to your need date approaches.

That said, there are trade-offs.

1. Target-date funds are expensive. That management does cost you money in the form of returns versus non-target-date funds.

2. If you forget about the target-date fund and let it ride past your target date, your returns will not track the overall market.

3. The target-date funds don’t adapt with your life changes. If your income and priorities change, you will want to change your investments.

4. Generally, these funds are a very conservative investment. They offer a smoother ride in volatile times, but they may disappoint you when the market has its good years.

I am here for you to discuss target-date investments if you are interested. That said, I manage many client’s investments that consider returns, long-term goals, and short-term life changes. That’s what I do! Please let me know how I can help!

The 401k legislation passed in 1978 and refers to the section of the Internal Revenue Code. These 3 numbers ending with the letter “K” have become synonymous with a company-sponsored retirement plan today. So much so, that most companies today do not offer another version of a retirement plan. So, understanding your options with your employer’s retirement plan is super important.

At first, 401K plans had just one flavor: Tax-Deferred. What does this mean? Essentially it means that with every paycheck, you can allocate a percentage to contribute to the 401k without paying income taxes on it. So that means that all the money you contribute to the 401k is not taxed while you are saving. No taxes are due on the growth of that money either. Taxes are paid when the money (and its growth) are withdrawn as ordinary income. For more information on Tax-deferred vs. tax-advantaged money, check out this post on my blog: Should I Convert to a Roth IRA?

In 2006, Congress allowed employers to offer a Roth version of the 401k as well as the original tax-deferred version. This Roth version was different by the way it is taxed. Every paycheck you still designate a percentage of your paycheck to the Roth 401k, but it is taxed as ordinary income upfront. After taxes are taken out and the money is in the Roth 401k account, it will never be taxed again, including the investment growth (with few exceptions).

While it is widely accepted that you should participate in your company’s 401k retirement plan (especially if your company offers to add to your contribution), deciding which 401k flavor to contribute to is not as straightforward.

There are several topics to consider when deciding between these two paths. Here are a few:

Pick a tax-deferred 401k if:
– Want to minimize taxes today versus in the future
– Likely to donate to charities after you turn 72 (which you can do without paying taxes)

Pick a Roth 401k if:
– If you believe tax rates in the future will be higher vs today
– If you will be in a higher tax bracket in the future
– Want to avoid Required Minimum Distributions (RMD’s) and the associated taxes
– Want your heirs to inherit money tax-free

Remember that you can always switch (or contribute to both) mid-way or towards the end of your career. For example, if your tax-deferred 401K balance has grown to the point you are concerned about taxes due to RMD’s, you can always switch your future savings to a ROTH 401K. Once you commit to a path, you can change your strategy based on your current savings and other life situations.

Is the honeymoon over for the historically low tax rates? A lot of us are asking this question. President Biden is proposing higher taxes to pay for new and expanded government programs. We can discuss if these programs are good or not, but we won’t be doing that here! Nonetheless, there are serious discussions about taxes increasing in various parts of the US population by our government leaders.

So, what does raising taxes have to do with considering a conversion of tax-deferred money (like Traditional IRA’s) into a Roth account? Let’s get some basics out of the way first.

Tax-deferred money (401K, Traditional IRAs, SEP-IRAs, Deferred Annuities) are investment vehicles that are funded typically out of our paycheck BEFORE taxes were paid, and then allowed to grow over time. After 59 ½, we can withdraw this money without penalty, but we do have to pay income taxes on the withdrawals. The general idea is that we can postpone paying taxes on these savings during our working years and then withdraw money during retirement when we are not drawing a paycheck and then theoretically pay fewer taxes on that money. Also, the government makes us start withdrawing money every year from these accounts starting at age 72, being forced to pay taxes along the way. (Required Minimum Withdrawals or RMDs)
Tax-advantaged money (Roth IRAs, Roth 401ks, etc.) is money that was taxed before it was placed into the account, then allowed to grow without ever needing to pay taxes on it again. Even better, there are no RMDs for Roth accounts.

Even if the tax rates do not go up from here, there are plenty of scenarios where after we turn 59 ½, that methodically moving money from the tax-deferred account to a Roth can save us both taxes paid to the government AND can result in more money in our accounts in our later years. Heirs do not have to pay taxes on inherited Roth money either, where that is not the case generally for inherited IRA money. If tax rates are going to go up later this year or January 1 of next year, the case for converting gets even stronger. Let’s look at a couple of examples:

Example 1: Joe is 62 and married. He has a total portfolio of $2.1Mil, and $1.8Mil of this is in tax-deferred money due to his long-term contributions to a 401K. He since left that job and started a new one; allowing him to convert that 401K money to a Traditional IRA, giving him more control and options. Joe is in good health and plans to work until his full retirement age to start his Social Security at 67. He is making $95K per year and lives without any unusual amounts of debt. For 6 consecutive years starting at 62, he moves $200K per year from his Traditional IRA into a Roth IRA. The result:
At age 90, he saves $1.9M in federal taxes paid and increases what his heirs inherit by $119K (versus not converting). At age 80, he saves $1.3M in federal taxes and has $480K more in tax-free money versus not converting any deferred money.

Example 2: Nancy is 73 and married. She has a total portfolio of $3.1M, and $2.5M of this is in tax-deferred money. She retired 8 years ago and lives on $70K per year after taxes. She is in good health and started Social Security at 65 for $1800/month. For 5 consecutive years starting at 73, she moves $400K per year from her Traditional IRA into a Roth IRA. The result:
At age 90, she saves $1.1M in federal taxes paid and increases what her heirs inherit by $190K. At age 80, she saves $690K in federal taxes and has $450K more in tax-free money versus not converting any deferred money.

Why? There are several reasons, but in both examples, the RMDs are generating more tax revenue for Uncle Sam versus converting to a Roth IRA and paying the taxes earlier in their lifetimes, but not for as long because of the conversions. Remember that once converted, Roth IRAs grow tax-free and are inherited tax-free.

Note that these examples were calculated with TODAY’s tax rates. If tax rates increase, these numbers only look more attractive.

Your situation may not be as clear-cut as this. If you’d like this analysis done for you or have questions, please feel free to reach out. I’d be happy to discuss.

Tax season is once again in full swing. While many concerned taxpayers file tax returns to meet the required deadline, criminals work harder to cash in and take advantage of the hectic tax season. Tax fraud remains a growing concern nationally, and counterfeit scams cost millions of dollars. Individuals who take a proactive approach can deter fraud and protect their identity, information, and their finances. Here are a few recent scams catching the watchful eye of the IRS.

TAX PREPARATION SCAMS

The IRS just released notice IR-2019-09 to alert taxpayers of unscrupulous tax preparers. Deceitful tax preparers file erroneous tax returns for many unknown taxpayers. The law requires all preparers who receive payment to prepare federal tax returns to have a valid Preparer Tax Identification Number (PTIN). The tax preparer must include their PTIN and sign the return. For e-filed tax returns, a dishonest preparer will omit his electronic signature.

Additionally, they may falsify tax information to increase the refund while directing the refund into their bank account. Taxpayers must review their tax returns for accuracy of income and deductions. Ensure the tax preparer signs the return and includes their PTIN. Make sure the bank account and routing numbers are correct. The IRS Directory of Federal Tax Return Preparers with Credentials and Select Qualifications provides an excellent resource to locate established tax preparers with the IRS.

CHARITABLE GIVING SCAMS

Counterfeit websites disguise themselves as other well-known, established charities to deceive generous individuals into donating money to a dire cause. Additionally, some individuals receive solicitations from fraudulent charities promising a nice tax deduction in return for your donation. Please don’t fall victim to their schemes. Donors can prevent thousands of dollars from falling into the wrong hands. The IRS provides a tool to help avoid charitable giving scams. Donors can verify if a charity is legitimate by utilizing the IRS search tool Tax Exempt Organization Search. Never give to a charity that solicits a donation without first verifying the authenticity of their organization.

EMAIL PHISHING SCAMS

In IRS notice IR-2018-226, the IRS alerts taxpayers to a recent spike in email phishing scams. While fraudulent emails and phishing scams have been around a while, data thieves continue working diligently to improve new tactics to steal valuable information. Emotet is the infected malware of choice in many email scams, and Emotet remains well-known as the most damaging and expensive to fix. Many of these scam emails display tax account transcripts in the email’s subject line and include infected attachments with similar wording. These emails appear legitimate. They often disguise themselves as representatives of banks, financial institutions, and the IRS. The IRS logo and other well-known bank logos seem real, and many unsuspecting individuals open the infected email attachment. The IRS does not contact individuals through email. The IRS warns individuals not to open suspecting emails. The IRS remains diligent in combating fraud. If you suspect a suspicious email, you can also forward the email to phishing@irs.gov.

After a bit of political posturing in December, the $900 billion Consolidated Appropriations Act of 2021 (2021 CAA) was signed into law by President Trump as the COVID-19 pandemic continues to impact employers and employees.

Here’s a quick recap of five key highlights:

Stimulus Checks: The new law authorized a second round of $600 checks for people with
income that meets the criteria. The checks start to phase out for individuals who earned
at least $75,000 in 2019 and $150,000 for joint filers.1

Unemployment Benefits: The law provides up to $300 per week in enhanced benefits
through March 2021. The benefits extend to self-employed individuals and gig workers.2

Student Loan Repayment: The 2021 CAA extends the provision that allows employers to
repay up to $5,250 annually towards an employee’s student loan payments. The
payments are tax-free to the employee.3

Small Businesses: The 50% limit on the deduction for business meals has been lifted.
Business meal expenses after December 31, 2020, and before January 1, 2023, may now
be fully deductible. Please consult your tax, legal, or accounting professional for more
specific information regarding this provision.4

PPP Loans: The new law contains $284 billion in relief for a second round of Payment
Protection Program loan funding. Businesses with 300 or fewer employees may be eligible for a second loan. “Second-draw” loans are available through March 31, 2021.5

As 2021 gets underway, expect some additional guidance from regulators on 2021 CAA.
Our office will keep an eye out for updates and pass information as it becomes available.

As we look ahead to a new year, we think of our goals and priorities. Some of these goals can involve getting an Estate Plan together. If you want to leave part of your estate to your stepchildren, you must make this specification in your will. If a stepparent dies without a will, the children will not get any part of the estate even if the deceased stepparent wanted them to. Stepchildren do not have automatic inheritance rights possessed by adopted and biological children.

Legally speaking, stepchildren are not entitled to any inheritance unless they are specifically named on the will. This fact can be traced back to the colonial days when America was under British common law. Due to the prevalence of negative stepparent stereotypes at the time, the centuries-old legal system did not encourage strong legal relationships between stepchildren and stepparents.

Blended Families and Estate Planning


What are blended families? The term blended family refers to a family situation where either the husband, wife or both, have children from a previous marriage. Blended families can take any of the following forms.:
– Families where both spouses have children from an earlier marriage.
– A family where the husband and wife have children from previous marriages and biological children as a couple.
– Married couples where either the husband or the wife have children from an earlier marriage.

Blended families often have to deal with complex issues when it comes to estate planning. Problems can arise between the parents or the children and their spouses. Some of the challenges individuals from these families face include:
– Scuffles over the division of responsibilities or authority.
– The need to protect their estate from previous spouses.
– Potential delaying of the stepchildren’s asset perhaps until the death of the parent’s spouse.
– The possibility of stepchildren being disinherited by the living spouse.

Estate Planning Asset Protection Strategies to Protect Stepchildren

The number of blended families continues to rise as divorce rates in first marriages, and remarriages grow. On average, about 50 percent of marriages and 60 percent of remarriages end in divorce in the US. With the help of an estate planning attorney, these families can develop some form of asset protection to make sure that the surviving offspring remains a part of their estate.

Stepparent Will

The stepparent should make sure they have a will that specifically names the stepchild/children as a beneficiary. If a stepparent dies without a will, his/her estate will be inherited by the legal spouse or the closest living relative but not the stepchild.

Irrevocable Life Insurance Trust (ILIT)

ILITs allow stepparents to provide for their children through life insurance and use the remainder to provide for their spouse. The parent purchases a life insurance policy using the child’s name and pays the premium for the rest of his/her life. The child will receive the inheritance upon the death of the parent. An irrevocable life insurance trust is an excellent way to ensure that stepchildren are not disinherited.

Bloodline Trusts

A bloodline trust is intended to benefit your child and his/her offspring. The trust protects a child from creditors and former spouses by keeping the money in the family. The child is the trustee.



Sources

http://www.huffingtonpost.com/news/us-divorce-rate/
http://www.forbes.com/sites/rbcwealthmanagement/2015/06/23/estate-planning-tips-for-your-blended-family/#9dc54944f4a2
http://www.n-klaw.com/the-blended-family-dilema/
http://www.kwgd.com/estate-planning-for-blended-families

A few weeks into a New Year and many think about various aspects of their lives. One of the primary areas that is commonly reviewed is personal finance. If you are thinking about retiring within the next few years or longer, you may want to create a resolution or two so that you can plan better for your non-working years. However, some people believe that it is simply too late for any plan to be effective or beneficial. While it is better to start preparing for non-working years early in your adult years, starting now is better than not making any preparations. These are some areas you can resolve to address soon.

Set Retirement Goals

Everyone has some dream about their life after they stop working in a full-time position. For some, the goal is to continue working on a part-time basis, others want to travel, and some may want to be closer to family. A primary resolution should be to define your goals. Without specific goals, it is not possible to plan appropriately for the future. After all, maintaining your lifestyle if you travel frequently may be much more expensive than if you stay close to home.

Eliminate Debt

Another resolution should involve eliminating debt. Debt cannot usually be paid off quickly, so resolve to create a feasible debt reduction plan. When you pay debts off now, you can reduce the amount of income needed after you retire. For example, if you pay off your mortgage, car loans, and credit card balances, you may be able to live on several thousand dollars less each month. By reducing the income required to live comfortably, you can feasibly retire with less money saved up.

Prepare a Budget for Retirement

In addition to making a plan to eliminate debt from your life over the next few months or years, you also need to prepare a budget for your non-working years. This budget will include estimated income from all sources after you quit working. It will also include reasonable estimates for expenses. Your planning should focus on cost-of-living adjustments related to inflation. If you plan to relocate to a new town after you retire, your budget should be realistic for that specific area.

Update Insurance Coverage

Many people who are preparing for the future fail to consider changing insurance needs after leaving the workforce. As you get closer to retiring, determine if you will continue to need life insurance. Analyze your need for different types of medical insurance and long-term care insurance. Each retiree is in a different position, so there is no catchall rule regarding how much or what types of insurance you need to have. Remember to update your budget with the premiums for these various insurance products. It is also wise to consider deductibles associated with each policy when determining how much money you will need.

Some people are so discouraged by their late start planning for this life stage that they throw in the towel. However, you can see that your initial efforts in each of these areas can help you get on the right path. Even though you think that you may be far behind others who are your age, you may be in a better position than you appear to be at first glance. When you make these crucial resolutions and start acting on them quickly, you can move forward with a confident footing as you approach your non-working years.

The new year brings about a time of reflection for many. One of the primary areas for review is personal finance. If you are thinking about retiring within the next few years, you may want to create a resolution or two to help you better prepare for your non-working years. However, some people believe it is too late for any plan to be useful or beneficial. While it is better to start preparing for non-working years early in your career, starting now is better than not making preparations at all. Read on for some of the areas you can resolve to address in the near future.

Set Retirement Goals

Everyone has some vision for their life after they stop working in a full-time position. For some, the goal is to continue working part-time; others want to travel or be closer to family. A primary resolution should be to define your goals. Without specific goals, it is not possible to plan appropriately for the future. After all, maintaining your lifestyle if you travel frequently may be much more expensive than if you stay close to home.

Eliminate Debt

Another resolution should involve eliminating debt. Debt cannot usually be paid off quickly, so resolve to create a feasible debt reduction plan. When you pay debts off now, you can reduce the amount of income needed after you retire. For example, if you pay off your mortgage, car loans, and credit card balances, you may be able to live on several thousand dollars less each month. By reducing the income required to live comfortably, you can feasibly retire with less money saved up.

Prepare a Budget for Retirement


In addition to making a plan to eliminate debt from your life over the next few months or years, you also need to prepare a budget for your non-working years. This budget should include estimated income from all sources after you quit working, reasonable estimates for expenses, and focus on cost-of-living adjustments related to inflation. If you plan to relocate to a new town after you retire, your budget should be realistic for that specific area.

Update Insurance Coverage

Many people who are preparing for the future fail to consider changing insurance needs after leaving the workforce. As you get closer to retiring, determine if you will continue to need life insurance. Analyze your need for different types of medical insurance and long-term care insurance. Each retiree is in a different position, so there is no catchall rule regarding how much or what types of insurance you need to have. Remember to update your budget with the premiums for these various insurance products. It is also wise to consider deductibles associated with each policy when determining how much money you will need.

Some people are so discouraged by their late start planning for this life stage they simply throw in the towel. However, you can see that your initial efforts in each of these areas can help you get on the right path. Even though you think that you may be far behind others who are your age, you may be in a better position than you appear to be at first glance. When you make these crucial resolutions and start acting on them quickly, you can move forward with a confident footing as you approach your non-working years.

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