November, 2020 | Live a Life By Design

The Millennial Perspective: The Spirit of Giving

Posted on November 25, 2020May 13, 2021 by Ashley Stieb

The holidays can be stressful for anyone, and being a millennial already comes with its own stressful baggage like expensive student loan payments and lower-paying jobs. Holidays can be a little tricky with these constraints. Gift exchanges, a tradition for a lot of people, may be nearly impossible for some. However, this doesn’t mean that you have to invoke your inner “Scrooge” and fail to participate in the giving spirit of the holidays. Below are my top five tips to alleviate stress and enjoy the act of giving when money is tight.

BE the present* – Sometimes just being with family and friends for the holidays is enough, especially if you live far away from home. I can’t tell you how many times I heard, “you don’t have to get anything for us. Having you here is all we really wanted.” So, if it is fiscally, and physically, possible, try to make it home for the holidays and spend time with your loved ones and friends.
Give the gift of time* – If giving makes you feel good, but your budget doesn’t allow you to buy gifts for everyone, try volunteering your time to give back in other ways. Work at your local soup kitchen and help serve those in need, volunteer to work with a toy drive or a food pantry to provide meals and toys for Christmas day.
Get crafty – If you want to give your loved ones something special during the holidays, try making them something! Think back to your school age days when you would make cards and masterpieces for your family in class. You don’t have to make a macaroni noodle self-portrait, unless you want to, but there are plenty of easy crafts out there that even the most artistically challenged can handle. Pinterest is a great tool for finding fun and easy crafts that your loved ones are sure to cherish for years to come.
Be kind – Some people may be less fortunate than others and you never know what your neighbors are experiencing. Because of this, it is important to be kind. A little bit of kindness can cost $0 and it can go a long way. Give someone a compliment, hold the door for a stranger, or ask someone how their day has been. Anything will do and sometimes the kind, little things can make someone’s whole day. You might be surprised by their appreciation!
Get focused – If the year has not quite gone the way you had hoped, sit down and make a plan for next year. No one said you must shop for the holidays in November and December. Why not shop all year? This way you can give the gifts you want to those you love and you don’t have to drop a fortune all at once doing so. Make a budget and/or set a goal. If you set a budget and want to take advantage of the savings that “holiday shopping” can have, then make a savings goal and plan so you can be prepared when you hit the stores in the Fall.

No matter how you choose to give during the holiday season, there is no sense in adding stress to your life when it already has enough. To many people, the holidays are not about the gifts, but rather spending time with your loved ones. The holidays are meant to be enjoyed and those closest to you will appreciate you and understand your situation. Remember, kindness is the only gift that is worthless until it’s given away. Merry Christmas and Happy New Year!

*When making plans for the 2020 holiday season, please refer to the CDC guidelines pertaining to social distancing, PPE, and large gatherings with people outside of your immediate household.

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Do You Qualify For A Penalty-Free Distribution From Your IRA?

Posted on November 20, 2020November 20, 2020 by Jimmy J. Williams, CPA/PFS, CFP®

Many people possess an Individual Retirement Account (IRA) or employer plan that holds assets for their future financial security. Due to the substantial economic impact caused by the coronavirus, the IRS provided relief to individuals in the form of more liberalized distribution options for these types of accounts.

However, the misunderstanding of many citizens is that anyone under the age 59½ can take a distribution from their IRA without incurring the typical 10% additional tax (or penalty) for premature withdrawals. This misunderstanding could cost you a significant amount of money, including additional penalty and interest, if you fail to pay the correct amount of tax on the distribution.

To qualify for relief from the premature distribution penalty, you must be a “qualified” individual as defined in the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) enacted on March 27, 2020. A qualified individual is one that has met one of the following criteria:

You have been diagnosed with COVID-19 or SARS-CoV-2 by a test approved by the Centers for Disease Control and Prevention (CDC);
Your spouse or dependent is diagnosed with one of the above viruses;
You suffered adverse financial consequences as a result of being quarantined, furloughed, laid off or had work hours substantially reduced due to the pandemic;
You have been unable to work caused by a lack of childcare due to the pandemic; or
You suffered adverse financial consequences as a result of closing or reducing hours of a business that you own or operate due to the pandemic.

As an individual with evidence of one of the criteria applying to your situation, and the proof would be required of you, the 10% additional tax on early distribution would not apply. However, federal and state income taxes would apply in this instance. Relief is provided by the IRS in the payment of the income tax due on the distribution by reporting one-third of the income on your individual return over a three-year period beginning with 2020 or the year you receive your distribution. For example, if you requested and received a $12,000 distribution from your IRA, you may include $4,000 of the distribution in each of the next three tax returns filed beginning with your 2020 return. Of course, if you wish to report the entire distribution in the year of receipt, you may do so and pay the total amount of tax due.

Lastly, what happens if you decide to return or repay the distribution to your account? Additional relief is provided in this instance. If you have reported one-third of the distribution on your tax return for 2020 and 2021 but decide to return the funds to your IRA in 2022, you may file an amended income tax return for 2020 and 2021 to receive your refund of taxes paid in these years associated with the pandemic relief. The repayment of the funds would be treated as if they were repaid in a direct trustee-to-trustee transfer and no federal income tax would be due on the distribution.

In most cases, the perception of relief is far different than its actual purpose. Too many people hoped that a carte blanche relief approach would be offered and anyone, for any reason, could take a penalty-free distribution and that would be the end of the matter. Our tax code is not an area of law that is easily amended or comprehensive enough in its nature that revenue generation may be left out of the analysis.

Tax law is not simple to understand. To help your family and you make sense of these complex laws and regulations, seek out the advice of a CERTIFIED FINANCIAL PLANNER™ professional for an analysis and planning meeting to reduce your tax burden. Judge Learned Hand remarked, “Anyone may so arrange his affairs that his taxes shall be as low as possible; he is not bound to choose that platform which will best pay the Treasury; there is not even a patriotic duty to increase one’s taxes.” Now, that alone should help you enjoy a Happy Thanksgiving!

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Choosing the Proper Benchmark

Posted on November 13, 2020November 13, 2020 by Jimmy J. Williams, CPA/PFS, CFP®

What a difference a week makes in the stock market! I thought we were in a pandemic. The lessons to learn from the current economic cycle are: 1) Markets don’t function with emotional bias based on the current state of the population; and 2) You shouldn’t try to time the markets based on “one-off” instances of change in the governance of our country.

Too many offerings of unfiltered and unverified reporting of market trends, expected apocalyptic tax changes and, overall chaos, fail to consider the market makers and buyers of large numbers of trading shares who do not make decisions based on a whim. You should approach your long-term investing strategy in the same manner. Make sound decisions based on facts and evidence while clearly focusing on your future needs.

How do you know if your portfolio is performing well? One method we recommend is the use of a proxy benchmark. There are many indices to choose from, but the proper application is to utilize a benchmark that meets your ideal portfolio allocation. If you are investing your retirement savings in a 60/40 equity to bonds allocation, you will not want to use the Standard & Poor’s 500 Index (S&P 500) as the lone index. Instead you may wish to use a blended index that provides for consideration of bond performance in the same percentage as your portfolio.

Let us explore how benchmarks are constructed so that you will understand their application to your planning process. For example, the S&P 500 Index is a market-capitalization weighted index of the 500 largest U.S. publicly traded companies. This means that the companies within the index are weighted based on their market capitalization and shares traded. Another common benchmark is the Dow Jones Industrial Average (DJIA) which is a price-weighted index. To understand how the DJIA is weighted, think about the individual share prices of the thirty (30) companies included in the index and the higher priced stocks receive a greater share, or weight, of the allocation to the index. By using daily share prices, the index seeks to account for stock splits, dividends paid or corporate divestitures (spinoffs) in its performance reporting.

When reviewing the performance of an asset class such as bonds, within your portfolio, consider a broad-based benchmark such as the Barclays U.S. Aggregate Bond Index (Barclays Agg). This benchmark index includes the entire universe of domestic, investment-grade, fixed-income securities traded in the United States. As a broad index including government securities, mortgage-backed securities, asset-backed securities, and corporate securities, it serves as an appropriate comparison to well-diversified bond portfolios.

There is a great deal of expertise, time and knowledge required to invest in markets. If you are concerned about the performance of your retirement assets, seek out a complimentary consultation with a CERTIFIED FINANCIAL PLANNER™ professional. You may be glad you did. See you on the golf course!

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The Habit of Saving

Posted on November 5, 2020November 5, 2020 by Jimmy J. Williams, CPA/PFS, CFP®

One of the most difficult habits to instill is saving. In this time we are living, too many of us want to experience a lifestyle that our current income cannot maintain while saving for our future. Before we realize it, our future is the present and we are in a bind. Forced working past the age of retirement that you would have desired to initiate your travel plans and other activities will not make you happy.

While reflecting on my younger days, I remember a couple of lessons learned about saving for the future. My goals were not lofty as a child except for the area of sports equipment. With limited means, my siblings and I purchased our own sports equipment if we wanted something beyond my parents’ budgeted funds for sports. This is where my saving habit came into existence. One of the most important lessons you can learn early in life is the habit of saving. Every child should be taught this valuable habit before graduating grade school.

During my childhood, I saved depending upon the item needed in life. For example, I needed a new baseball glove because George Brett of the Kansas City Royals said so and he was a Hall of Fame Player. (Well it wasn’t only that fact but I also liked the Wilson A2000 glove and how it looked on my left hand.). My parents took me to the sporting goods store and we looked at the gloves. There it was on the rack in front of me – the baseball equipment that would make me a Golden Glove Award winner!

I was smiling ear-to-ear until the salesman told me the price of the glove, $125. Ouch! I had saved $35 and thought it would get me a glove used by the great third baseman, George Brett. Lesson #1: The investment required for worthwhile items may cost more than you originally thought.

So, I went to work saving the remaining funds needed to buy the glove. To insure that the glove would not be sold when I returned, the salesman placed the glove in layaway for me. For the next several weeks, I would bring a payment to the store to be applied to the glove. After six weeks, I was in the store and smiling with a Cheshire Cat grin. I could take my glove home today!

This is where I learned my Lesson #2: Things don’t make you a better ball player, practice does. My new glove was my pride and joy. My abilities to play 3^rd base did not immediately improve and I will a little disappointed with myself.

The moral of this story is that you may want to examine why you want something and allow time to pass before you buy on an impulse. Saving for your future should be a habit that we develop early in life. You will find that you are less stressed in life, prepared for inconvenient hardships that arise and are more prepared to take advantage of future opportunities. The great investor, Warren Buffett, began his savings habit while a little boy. This habit helped him become one of the wealthiest people in the world. I am not saying we will all be as rich as Warren Buffett but I am saying you may enjoy a pretty good lifestyle.

If you need help finding a strategy for saving that creates your bigger future, seek out a CERTIFIED FINANCIAL PLANNER professional. This is one habit that will serve you well in life. See you on the golf course!