Insights: The C&J Blog

We offer clients educational insights that help them make sense of the current market & economic environment.  Each monthly investment letter is written by our investment analyst and contains candid insight and perspective that facilitates a clearer and deeper understanding of our views.  Alongside our monthly investment letters, we also maintain a blog that touches on a variety of topics relating to financial planning and investing.  If there is a question or topic on your mind that you’d like for us to discuss in a future investment letter, feel free to let us know at ssmith@cjwealth.com.

The Importance of Financial Certifications

Financial certifications are a commitment to the client’s best interest

Financial certificationsYou’ve decided to get serious about your financial future and want to find a financial advisor to guide your decisions. There’s a lot to consider in creating a comprehensive financial plan.

Pulling all the pieces of your financial life together—budgeting, retirement planning, saving for education, insurance, taxes, and investing—is a challenging endeavor.

Finding credentialed professionals is essential. Many professionals call themselves financial planners and most people think all financial advisors are “certified,” but this isn’t true. Only those that have fulfilled and maintained the requirements of the CFP Board can display the CFP® trademark and call themselves a CERTIFIED FINANCIAL PLANNER™.

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How Your Inherited IRA is Taxed

Couple inherited IRA Have you inherited an IRA? What type of IRA is it? Your answer will matter a lot when it comes to your tax bill. Inheriting a traditional IRA will have very different tax consequences than inheriting a Roth IRA.

Consider the following example. Let’s say Tom named his three children as beneficiaries of his three-million-dollar traditional IRA. He never made any nondeductible contributions. When his children take distributions from the traditional inherited IRA those distributions will be fully taxable, but not subject to penalty. What if Tom converted his traditional IRA to a Roth IRA more than five years ago? All distributions from the Roth IRA paid to his children would be tax and penalty free. That is a very different result.

Traditional IRA

If you were named the beneficiary of a traditional IRA, you will most likely face income tax consequences. This is because most funds in traditional IRAs are tax-deferred but not tax-free. Uncle Sam will eventually want his share. Distributions to beneficiaries will be taxable to the beneficiaries in the year taken. You can minimize the tax impact by using the stretch and taking distributions over the longest period of time the rules allow.

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5 Easy Steps to a Roth IRA Recharacterization

What is a Roth IRA recharacterization?

Roth IRA recharacterizationIn the simplest of terms, a Roth IRA recharacterization is an “undo.”  It erases a Roth IRA conversion, and the conversion is treated as if it never occurred.

1.  Meet the deadline.   A Roth IRA conversion can be recharacterized until October 15 of the year after the calendar year of conversion. That means that either a January 1, 2017 or a December 31, 2017 conversion can be recharacterized through October 15, 2018. If you miss the October 15 deadline, the only way to get an extension is to go for a private letter ruling from the IRS.

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5 Retirement Strategies for Younger Workers

retirement strategies for younger workersNo one can argue that the millennial generation faces big challenges when it comes to savings. Younger workers are dealing with record setting student loan debt, high housing costs and stagnant wage growth. It’s hard to save for retirement when you are worried about the next month’s rent. Here are five retirement strategies for younger workers.

1.  Start Small

If you are just getting a foot in the workplace then there is nothing wrong with starting small. Time is something that you have on your side. Starting early can make all the difference, even with a very small amount of money.

For twenty-somethings, just starting out in the work place and looking to pay the rent, enjoy life and still save for retirement, there are options out there. Even a small salary deferral to a 401(k) or contribution to an IRA is worth considering. It is a small step in the right direction and it gets you into the saving habit early!

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7 Things Your IRA Custodian Won’t Tell You

IRA custodianIt is important to know what your IRA custodian will tell you and what they will not or cannot tell you. The I in IRA stands for individual and many times it is up to the individual to know things or keep track of them.

  1. 60-Day Rollovers – An IRA custodian will not remind you that an individual can only do one 60-day IRA-to-IRA or Roth IRA-to-Roth IRA rollover in a 12-month period. They may not even tell you that you have 60 days to complete a rollover. IRS has ruled that while a custodian might be held liable for erroneous information, they have no obligation to give the individual any information on rollovers. A distribution that is eligible for rollover is one where the check from the IRA or Roth IRA custodian is made payable to the account owner who then has 60 days to recontribute the funds to either the same or a different IRA/Roth IRA. This type of transaction can only be done once in a 12-month period. IRAs and Roth IRAs are aggregated for the once-per-year rule.

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Calculating Social Security Benefits

Calculating Social Security Benefits are a function
of three primary factors.

How Many Years Have You Worked?Calculating Social Security Benefits

The Social Security Administration uses 35 years of earning history

▶ If you worked more than 35 years – it uses the highest 35 years of salary

▶ If you worked less than 35 years – it still uses 35 years of salary (the years you didn’t work count as $0) This rule impacts far more women than men.

Why? Many women took significant time away from work to raise one or more of their children. 

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10 Things about Using your IRA for Educational Expenses

Using your IRA for educational expensesIt’s back to school time! This means it’s time for school supplies and additional expenses. Are you considering using your IRA to pay that large tuition bill? The rules can be complicated. Here are 10 things you will want to know about using your IRA for educational expenses.

1.  Typically, if you take a taxable distribution from your IRA before you reach age 59 ½, you are subject to a 10% early distribution penalty. The exception to the penalty allows you to take a penalty-free distribution from your IRA if you use the funds for qualified higher education expenses.

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What’s your IRA worth?

What's your IRA Worth?IRA owners often want to invest in assets other than the usual stocks, bonds, cash, and mutual funds. The tax code does allow for IRAs to invest in most anything except for collectibles, life insurance, and S-corporation stock. So what do those “other assets” make your IRA worth?

If you invest $1,000 in a publicly traded stock it’s simple to determine the value of the investment at any time. You can look it up on your computer, smart phone, or tablet. But investing in real estate, promissory notes, a start-up business, a master limited partnership, an LLC, or any other investment option, it’s not easy to determine its investment value. Typically, the IRA custodian carries the investment on its books as the amount you originally invested. The value doesn’t change from year to year.

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6 Key Tips to Follow As You Juggle Your Own Retirement Planning

Juggling retirement planningContributions for Retirement Planning: If you are working, have an employer plan available, and there is an employer match, make sure you are contributing enough to the plan to reach that maximum match level. Don’t forget to make your own IRA or Roth IRA contributions as well. Your participation in the employer plan has no effect on your ability to make those contributions. It could, however, affect the deductibility of your IRA contributions.

Roth IRA Planning: You really want to contribute to a Roth IRA, but (and it’s a big BUT) you exceed the income limits to qualify. You can utilize a strategy called the Back-Door Roth IRA to move funds into a Roth IRA, where they can grow tax-free into retirement.

Don’t forget about Roth conversions for yourself. You can use a strategy called “filling the brackets.” You convert smaller amounts each year to keep yourself from going into a higher tax bracket. When it comes time to do the tax return, maybe some numbers have changed and you converted too much. No problem! You have until October 15 to recharacterize all or part of your Roth conversion. You “undo” it and do not owe income tax on the amount you recharacterize.

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