March, 2023 | Live a Life By Design

Are My Bank Deposits Safe?

Posted on March 31, 2023March 31, 2023 by Jimmy J. Williams, CPA/PFS, CFP®

In the past couple of weeks, the news has carried a headline that shocks many of us – bank closings! Granted the subject banks of the stories have been much larger banks than those in our local communities but the concern for safety of deposits has continued to grow at a grassroots level.

To protect depositors’ accounts, most banks participate in the Federal Deposit Insurance Corporation (FDIC) for coverage like you purchasing insurance on your home or automobile. Participating banks pay a premium on a prescribed basis to retain this coverage for its customers. Silicon Valley Bank was no exception. However, in the present instance, the bank’s management bears more of the blame for failure than systemic banking processes. The United States’ banking system is secure and has functioned as it is designed since the 2008 housing loan crises.

One of the more critical questions is how will the FDIC handle the claims from the affected depositors? This is where the confusion for most citizens begins. Generally, the maximum amount of coverage for an FDIC-insured account is $250,000. There are many different methods of protecting your accounts should you wish to maintain a greater amount than $250,000 in your local bank. For example, if your spouse and you maintain a joint account and add your three children as beneficiaries to the account, the FDIC coverage increases to $750,000 for the beneficiaries.

Before depositing your funds in a prospective bank, you should inquire as to the bank’s participation in FDIC coverage. You may do so by performing a quick search of the bank name at https://banks.data.fdic.gov/bankfind-suite/bankfind or call FDIC at 1-877-275-3342. Banks are required to inform you of such coverage availability when opening your new account. Most often you will see a sign on the bank’s logo or front entrance displaying “Member FDIC” reflecting the bank’s participation in the program.

Should you deposit your funds in a brokerage account, you will automatically receive coverage by a similar program called Securities Investor Protection Corporation (SIPC). However, the two programs differ in coverage amounts and types of coverage. For example, the FDIC limit of coverage is $250,000 per account. SIPC coverage limit is $500,000 per account. Many custodians, another word for “bank”, that hold securities and cash for investment purposes for customers will provide additional coverage through reinsurance. For example, the custodian we utilize for our clients’ assets is Pershing, LLC, a wholly owned subsidiary of the Bank of New York. Pershing, LLC

The key to gaining and maintaining confidence in your bank is to speak with the professionals about your accounts and learn what coverage limits apply to your accounts if more than one account is funded. Personally, I bank with local banks because of the relationship of the professionals, knowledge, and faith of management as well as accessibility to funds. In this modern era, internet banking is becoming the norm and will soon supersede the desire for anyone to travel outside their home to perform banking tasks. Until then, I prefer to shake their hands, speak with the people, and understand clearly who holds my money.

If you are concerned about the news you have heard pertaining to banking challenges in the United States, seek out a Certified Financial Planner™ professional to help you gain understanding about the process. You can sleep better at night understanding the coverage limits for your various accounts and the operations of your local bank. Another of my favorite quotes by William Feather is, “Business and life are like a bank account. You can’t take out more than you put in.”

Related Podcasts

The Taxman Cometh

Posted on March 19, 2023March 19, 2023 by Jimmy J. Williams, CPA/PFS, CFP®

Only two certainties remain in life – death and taxes. These two actions require a significant commitment from you in terms of time and money. It is important that we each carry a portion of the costs of the freedoms we enjoy in the United States of America. A phrase often quoted by the leaders of our government is that the “rich should pay their fair share”.

“Fair” is such an ambiguous term. What is your definition of “fair” when it is applied to your income and assets? Should the percentage you pay be 10%, 20% or, lets get creative and say 50%? Based on research performed by The Tax Foundation in 2020, high-income taxpayers paid the majority of federal income taxes. The findings were quite confirming of my thoughts in how our system of taxation is applied to the population.

Based on the findings of the research, the bottom half of taxpayers earned 10.2% of the total Adjusted Gross Income (AGI) and paid 2.3% of all federal individual income taxes. Conversely, the top 1% earned 22.2% of total AGI and paid 42.3% of all federal income taxes. Would you determine this to be “fair”? Surely those of us that earn more should pay more in taxes. However, the nebulous word “fair” may be defined differently by the two aforementioned factions of taxpayers.

For 2022 income tax filings, individuals will find themselves in a marginal tax bracket from 10% to 37% (with additional surtaxes added to the top rate based on other income factors). Generally, the argument is made by the ultra-wealthy such as Bill Gates, Warren Buffett and others that they should pay more in taxes. The challenge is the types of income experienced by the ultra-wealthy and those in the 10% bracket consist of different taxable characteristics. For example, the rates for ordinary income range from 10% to 37%. However, the most wealthy of us actually have a greater share of annual income derived from investments thereby describing the income as capital gains. The maximum rate of federal tax for long-term capital gains is 20%.

A couple of years ago, Mr. Buffett was quoted as saying he paid a lower tax rate than his secretary (an archaic term in today’s world but Mr. Buffett is a member of the “Greatest Generation”). His secretary must be well paid to be taxed higher than 20% on her earnings. These types of comments stem from the frustration in our U.S. tax system by the Oracle of Omaha. As an investor, Buffett has benefited for decades by the favorable tax treatment afforded capital gains. The theory is that our economy will help everyone if we continue to experience robust investment in jobs and infrastructure. I do believe this to be a true statement (with provisos and adjustments).

There are certainties in the tax code on which we can all rely. One of those certainties is the due date of the filing of your individual income tax return for 2022. The due date is normally April 15. This year the due date is April 18, 2023. I understand your confusion. Three additional days to file and pay your tax liabilities. To grasp how the tax law is written, one must understand the impact of weekends, holidays declared and holidays recognized in specificity. This tax filing season is one of those flummoxed moments where April 15 is a Saturday, which means Sunday is the 16^th and your return should be filed by Monday, April 17. However, the District of Columbia, the special designated land in which the U.S. Capitol is located so that no state would claim to be more honored than another, will celebrate Emancipation Day on Monday. A brief examination of history will confirm that Emancipation Day, marking the abolition of slavery in D.C., was effective on April 16, 1862 when signed by President Abraham Lincoln. Not to sound pedantic but that date is a Sunday in 2023 and, therefore, will be celebrated on the next business day which is a Monday.

So, the good news. You have three extra days to file and pay your income taxes. However, my recommendation is that you don’t wait until the last day to file. If you are receiving a refund, file early and take possession of your money. If you owe money this year, file on April 18, 2023, and pay the tax in full to avoid penalties and interest being assessed.

If you wish to take a proactive approach to your tax planning, seek a complimentary consultation with a Certified Financial Planner™ professional. By focusing on one of the largest expenses of your family’s annual budget, you will experience greater confidence by maintaining control of your finances. I often quote to my friends that “I am glad to pay taxes…” After they cease looking at me with a shocked look on their faces, I finish the quote – “… the alternative of paying nothing means my family struggled and lacked the basic pleasures of this life.” Hope you enjoy a great Spring Day with the extra hour we gained earlier this week!

Related Podcasts

Don’t Leave Your Money Behind When You Leave a Job

Posted on March 9, 2023March 9, 2023 by Jimmy J. Williams, CPA/PFS, CFP®

If you were to leave your home and move to another one, would you leave your valuable jewelry and other assets with the old home? Of course not! In a similar sense, millions of Americans leave their place of employment and fail to protect one of their most important assets after the change in employment – their retirement account.

Participants of 401(k) plans control, to a degree, the mobility of their retirement accounts. We were visiting with a business executive recently who had been very successful in his career. One interesting note was that he had worked for five different companies during his career and left his sizeable retirement accounts at each of the employers. When I asked his reason for abandoning his accounts with a previous employer, he simply stated that he had invested his funds in a proper allocation and wanted to diversify his total investment for retirement.

My next question caught him ill prepared. I asked, “Who is the new custodian for the plan you HAD with XYZ Company?” For purposes of full disclosure, I had direct knowledge that the XYZ Company had changed platforms for the retirement plan twice since this gentleman had been last employed with the company. He couldn’t answer my question. Then I asked what he knew of his sign on and password for the platform to obtain balances and statements. Again, he admitted that he did not know the information.

A valuable lesson to be learned is to take control of your retirement assets from your former employer by transferring them to your Individual Retirement Account (IRA). Too many times have we witnessed the stress a person experiences when they can’t gain access to their money because of changes in platforms, company being sold or some other transaction that occurs since their last date of employment.

By taking proactive action upon separation from service from your employer, you have the information to request a trustee-to-trustee transfer to an IRA without tax impact. Further, you will have retained the pre-tax favorability of the assets by transferring to your IRA. Lastly, you will have the opportunity to invest in a much larger selection of investment types than most plans can provide you.

Another excellent benefit for maintaining control of your employer plan accounts is that you can consolidate all of your 401(k) accounts into a single IRA which will make your management of the funds much simpler. By maintaining a single IRA, you can monitor any potential rebalancing or concentrating in a single asset class that will help you mitigate risk in the portfolio.

Life in retirement should be simpler and with more freedom than you accomplished while in your career. It does take a plan to reach a simpler lifestyle and it is something we do every day for our clients. No one retires to work harder managing and protecting their assets. Life is simple but we tend to make it harder than it must be.

If you have orphaned a 401(k) account with a previous employer, act today to regain control of your assets. We believe it is in your family’s best interest to communicate the location last recalled of the assets with a spouse or significant other. What if you decease while the plan assets remain with your employer? There are steps you can take to protect your family and facilitate the distribution or transfer of these assets. To help you paint the picture of your bigger future, seek a complimentary consultation with a Certified Financial Planner™ professional. A quote by Joshua Becker is so fitting to end this article, “The first step in crafting the life you want is to get rid of everything you don’t.”

Related Podcasts

“During” Retirement is Different than “To” Retirement

Posted on March 3, 2023March 3, 2023 by Jimmy J. Williams, CPA/PFS, CFP®

Work, work, work! This is the metronome of our lives for more than 40 years of our existence. My father was an excellent instructor on life as he dispensed exorbitant amounts of wisdom to me while growing up. Some of his sage advice, not original to him, was “you don’t have time to do it twice so make sure its done right the first time.” Or, the excellent mode of always staying focused on the task at hand as he framed in the statement, “the idle mind is the Devil’s workshop, therefore, if you have time to breathe, you have time to work.”

My father is not moving as fast as I remembered from my early childhood but at the young age of 83, he continues to mete out wonderful statements and quotes about work being good for a person and building character. Recently, he made a statement during our telephone conversation that got me to thinking. His comment was regarding his longevity in life and his admission that he would have taken better care of himself had he known he was going to live this long.

Many people initiate savings for retirement in their employer’s benefit plan. Whether it is a SIMPLE Plan or 401(k), most of the participants establish the allocation of the underlying investments and forget about them. Every pay period the funds are deposited in their account and a statement is produced every quarter which may, or may not, be reviewed with an eye toward the ultimate goal of retiring.

It is critical that a change of mindset be adopted toward the processing of saving for retirement and investing during retirement. These are two distinct functions with differing goals. While accumulating wealth it is a goal to invest in growth as well as value stocks. Perhaps a younger person may invest a greater allocation of their savings in equities and allocate bonds in greater percentage as they age. Further, additional risks may be assumed by younger investors that allow for non-traded investments to be a diversification strategy for their portfolio.

As a person gets closer to their targeted retirement date, a different thought process must be invoked. For example, it is imperative that a pre-retiree understand their income streams which will be needed to support their lifestyle when their salary is no longer an option. Understanding your Social Security benefits, pension options and Medicare plans are the basics for preparing for retirement.

To potentially increase your cash flow in retirement, many investors will allocate a portion of their portfolio equities to value stocks which, generally, pay a consistent and higher dividend than their growth counterparts. Bonds become more prevalent in a retiree’s portfolio than during the accumulation phase. It is also important to review or stress-test your portfolio for potential market contractions to determine if the income streams generated will be sufficient for your lifestyle. Remember, if the markets decline in performance, you costs of living do not cease or lower.

Two of the most negative consequences to a retiree’s portfolio are mostly uncontrollable – inflation and taxes. Certainly you can plan your finances in a manner that reduces the impact of inflation and taxes but you can’t remove them as an influence on your budget. Inflation applies to every good you buy such as groceries, gasoline and clothing. Taxes are assessed on most everything you own or touch – property, automobile, consumer goods, etc.

The best method of being prepared for retirement is to seek out an independent opinion as to your plan for the future before you retire. We advise our clients to meet with us approximately five years before their planned retirement date to allow time for them to implement their plan and feel comfortable with the intended outcomes.

One of the most empowering processes we developed for our clients is called The LifePlan Solution™. This unique process analyzes the resources you have available for retirement, provides a comprehensive approach to lifetime income and instill confidence by consistently communicating potential changes that are necessary to maintain your desired lifestyle. To gain confidence in your future plans, seek a complimentary consultation with a Certified Financial Planner™ professional. It is much easier to hit a target that you have defined and stay focused on for your life.