Questions to Ask A Prospective Financial Professional

What to look for and what’s not important   If you are shopping for a financial professional, you need a good checklist of questions to ask. What you are looking for is someone who handles clients like you – and who is financially wise. As you assess a professional who manages your assets, for instance, do yourself a favor: Don’t rely on his or her investment record. Clients have differing needs. A money manager whose investment performance touched the stars last year may falter this year. More important nowadays may be how skillful a financial professional is at preserving your assets. That may range beyond market forecasts into such realms as insurance. Losing the ability to work and generate income, because of a sudden disability, can be more ruinous to your financial well-being than a slide in the stock market. This list of questions to a prospective professional will help you decide whether the person is a suitable fit for you: What Don’t You Do? Some financial professionals are strictly asset managers. They run your portfolio and do no planning. Others are wealth managers and their mandate is broader: They help plan the risk in your life. Within these categories are specialists in such areas as insurance and estate planning. You may hire a professional to help you draw up an investment plan aimed at pursuing enough assets to see you through retirement. But the financial professional may know zilch about creating a trust to pass along wealth to your grandkids. So, you will need another expert for that. Who Is Your Typical Client? Let’s say you are starting out and have a net worth of $50,000. It may not

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There’s Still Time to Contribute to an IRA for 2021

Even though tax filing season is well under way, there’s still time to make a regular IRA contribution for 2021. You have until your tax return due date (not including extensions) to contribute up to $6,000 for 2021 ($7,000 if you were age 50 or older on or before December 31, 2021). For most taxpayers, the contribution deadline for 2021 is Monday, April 18, 2022. You can contribute to a traditional IRA, a Roth IRA, or both, as long as your total contributions don’t exceed the annual limit (or, if less, 100% of your earned income). You may also be able to contribute to an IRA for your spouse for 2021, even if your spouse didn’t have any 2021 income. Traditional IRA You can contribute to a traditional IRA for 2021 if you had taxable compensation. However, if you or your spouse were covered by an employer-sponsored retirement plan in 2021, then your ability to deduct your contributions may be limited or eliminated, depending on your filing status and modified adjusted gross income (MAGI). (See table below.) Even if you can’t make a deductible contribution to a traditional IRA, you can always make a nondeductible (after-tax) contribution, regardless of your income level. However, if you’re eligible to contribute to a Roth IRA, in most cases you’ll be better off making nondeductible contributions to a Roth, rather than making them to a traditional IRA. Roth IRA You can contribute to a Roth IRA if your MAGI is within certain limits. For 2021, if you file your federal tax return as single or head of household, you can make a full Roth contribution if your income is $125,000 or less. Your maximum

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What to Expect on Your 2021 Tax Return

The federal government’s response to the COVID-19 pandemic continues to impact individual income tax returns, from the suspension of federal student loan interest to expanded child tax credits. For many taxpayers, this may mean your 2021 return may look a bit different from last year’s tax return. For some, this may mean a smaller refund or a higher tax rate. Here is some information about how certain factors may result in a lower federal income tax refund or affect your taxes due. No Tax Waiver on 2021 Unemployment Benefits In March 2021, Congress passed the American Rescue Plan Act, which waived federal income tax on up to $10,200 of unemployment benefits paid per individual in 2020.1. However, no unemployment tax breaks have passed since then. This lack of a tax waiver means that the approximately 25 million Americans who received unemployment benefits in 2021 and did not have federal income tax withheld (or pay estimated taxes) may receive a smaller refund than before. Advanced Child Tax Credits May Lower Refunds If you have a child under the age of 17 and did not opt-out of the $250 or $300 per month per child advance payments beginning in June 2021, there is a lower income tax refund possible to compensate for these advanced child tax credits payments.2 The overall child tax credit was higher than in prior years (at $3,600 per child age five and under and $3,000 per child age six and over). However, advancing half the overall credit over the last half of 2021 means that taxpayers may now get proportionally less when they file their tax returns. No Federal Student Loan Interest In 2021 For more than a

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Spring Cleaning Your Investments

Spring is traditionally the time to clean the garage and to get the yard in shape. It’s also a great time to clean up your investment portfolio. Going into the final days of tax season, this is a perfect opportunity to get rid of clutter, review your asset allocations and make the necessary changes if your portfolio has strayed from your financial plan. Here are seven steps to making your portfolio cleaner and more efficient. Think of Your Investments as a Portfolio This is the first key step. Many investors focus on each individual holding and fail to look at the sum of the parts. Of course, it is important to invest in quality mutual funds, exchange-traded funds, stocks and bonds. But it’s smarter to start by determining whether your overall portfolio allocation is in line with your financial goals and risk tolerance. Ideally, this should all be an extension of your financial plan. Even younger investors starting out should think in terms of their overall portfolio, even if it contains only a few holdings at this point. Find Your Most Recent Statements and Organize Your Records Review all monthly, quarterly and yearly documents from your investment accounts. Keep them all in a paper file or on your computer and find a way to take a consolidated, overall view of your holdings as a portfolio. Categorize your portfolio by account and by asset class on a spreadsheet. This shows you how well-diversified you are across different asset classes. Your spreadsheet might reveal an ungainly number of individual holdings across different accounts. That’s called financial clutter. This is common among folks who have a number of old 401(k)s from former employers.

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investing

Luck of the Investor: Making Your Own Luck on St. Patrick’s Day 

As Samuel Goldwyn once said, “The harder I work…the luckier I get!” 1 But when it comes to investing, luck may play a huge role in outcomes—no matter how hard you work.2 Below, we discuss some ways that luck may impact your investing, as well as some steps you may wish to take to try to make your own good luck this St. Patrick’s Day. The Impact of Luck on Investment Returns One reason so many financial professionals advise against market timing for long-term investors involves the distribution of days with major gains and days with major losses. Historically, and particularly seen during the earliest days of the COVID-19 pandemic, some of the market’s best days were followed by some of its worst, and vice versa.3 Trying to sell at the top and buy at the bottom may require a great deal of luck. You may need to trust that a day with a 2 or 3 percent loss may not be immediately followed by a day with a 2 or 3 percent gain. However, over the course of a long investing horizon, these single-digit gains and dips aren’t likely to have a major impact unless you make a habit of buying and selling during volatile periods. Focus On Process, Not Prior Results How can you take advantage of good luck and avoid the impact of bad luck when choosing your investments? The answer may be complicated and may depend on your personal circumstances. However, by focusing on the investment process—rather than chasing returns by buying into funds that have recently had a good run—you may be more likely to pick a future winner. Having a solid process may increase your probability

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Retirement

Crossing the Bridge to a Satisfying Retirement

One of the more important—and hopefully enjoyable—events you will face in life is retirement. After spending many years building your career, you have likely accumulated a comfortable nest egg. If you have reached a point where retirement is the next big step, you need to develop a strategy that will help you cross the bridge from the world of work to the world of leisure.   While most retirement planning discussions focus on the financial aspects of securing a comfortable retirement, few look at the nonfinancial issues that need to be addressed. Indeed, when retirees report being dissatisfied with retirement, it is more often the nonfinancial aspects they find troubling. Specifically, lifestyle changes and loss of self-esteem due to loss of work often create the most difficulties.   Perspective is Key Maintaining perspective is really the key to enjoying one’s later years. While the word “retirement” suggests that something is coming to an end, cultivating a more positive view can help you learn to see retirement as the beginning of a new phase of life—a phase in which you can do all the things you never seemed to find the time for while you were working. Volunteer work can enhance your sense of making a contribution, while taking courses in areas of special interest can challenge your intellectual curiosity. If thoughtfully chosen, these activities can help bring a great deal of happiness and meaning to your life.   Easing the Transition From a psychological standpoint, some individuals find that separating from a lifetime of work is a more emotional experience than they ever expected. It is possible that it may take from two to five years to disengage from the

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Hoping that 2022 is When You Retire Early?

A pre-retirement checklist to make early (or earlier) retirement a reality As we make our way through 2022, maybe the dream of early retirement has begun to take shape in your mind. Maybe you’re researching when you might first qualify for Social Security retirement benefits (hint: for Social Security income, the youngest age when you can apply is 61 years and nine months old – you would then receive your first Social Security check four months later – one month after your 62nd birthday). But as attractive as monthly checks may be, seriously consider your financial position to be sure you can afford to walk away from the nine-to-five routine. When reviewing your retirement income, incorporate accurate Social Security figures into your financial equation. Keep in mind that Social Security benefits paid at an early retirement age will be less than the benefits paid at full retirement age (65–67, depending on your date of birth). To estimate your Social Security benefit amount, you can go to the Social Security Administration’s website at www.ssa.gov to use the agency’s online calculator. Think Beyond Social Security Beyond your Social Security benefits, however, are other major factors, such as your overall financial situation, prospects for future income, and satisfaction with your job. If early retirement seems a reasonable goal, determine how much income you can count on from savings to supplement your Social Security benefits. Remember to include income from employer-sponsored retirement plans, such as 401(k)s, Individual Retirement Accounts (IRAs), or annuities. Once you have determined your retirement resources, add up your current living expenses and calculate a rough estimate of how much income you may need during retirement. It is possible to live on

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5 Valentine’s Day Gifts that Grow in Value Over Time  

Valentine’s Day is one of the biggest holidays for romance and for lavishing gifts on that special someone in your life. While flowers and chocolates may be the most common gifts exchanged on that day, why not consider a gift that may grow in value year after year? Then you would truly be giving the gift that keeps on giving. Want to learn about some value-gaining gifts for your loved ones? Check out some of the ideas listed below. 1. Treasury Bonds Treasury bonds are one reliable gift that grows in value for those who are patient. Consider throwing in a bond with your Valentine’s card and give them a little bit of savings growth without any effort on their part.1 2. Jewelry A popular gift for Valentine’s Day is jewelry. High-quality jewelry made from precious stones, gold, silver, or platinum may make a great accessory and a good investment. If you do your research and find a reputable jeweler, you may have a piece that increases in value over time.2 3. Antiques Sometimes those old, unique, one-of-a-kind items are worth a lot now and even more in the future. While it may take some legwork and a lot of research to find an item or piece with a high potential to increase in value, you may have a gift that is likely to appreciate in value and be one they won’t soon forget.2 4. Artwork Artwork makes a beautiful and personalized gift for any occasion. If you get a piece from specific artists or time periods, you may end up with a piece that has the ability to appreciate in value for years to come. While it may not

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Retirement Planning: To Roth or Not to Roth?

When saving for retirement, it often makes sense to contribute to employer-sponsored retirement plans to take advantage of any available employer match opportunities. However, not everyone has access to an employer-sponsored plan. Even if you do, there are reasons you may want to consider using Traditional and/or Roth IRAs to supplement your retirement savings. There are important differences between the two types of accounts.[i] Understanding the potential benefits and drawbacks of each type of IRA can help you make more informed decisions. Potential Benefits and Considerations Regardless which type of IRA you choose, the contribution limits are the same, although Roth IRAs contributions are subject to income limits.[ii] Traditional IRA contributions are not limited by income levels unless you or a spouse was covered by an employer-sponsored plan during the year of the contribution. In 2022, the total amount you can contribute to your Traditional and Roth IRA accounts is the lesser of your taxable compensation for the year or $6,000 ($7,000 for those age 50 or older.)[iii] However, there are important differences in tax treatment for these accounts. If your income is below certain thresholds, you may be able to deduct some or all of your contributions to traditional IRAs, reducing your taxable income in the year of the contributions.[iv] Taxes on contributions and any growth are deferred until you begin withdrawing them. So, if your tax bracket in retirement is lower than in your earning years, you may pay less in taxes on your retirement dollars. In contrast, you cannot deduct contributions to a Roth IRA – those are after-tax contributions.[v] However, qualified distributions from Roth IRAs are not subject to federal income taxes, potentially lowering your tax

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Building a Strong Financial Foundation

Today, many people are concerned about saving for retirement or paying for a large ticket item, such as a child’s college education. If you belong to this group, now may be the time to organize your finances. It is never too early to begin, and the sooner you start, the better. Consider the following steps to building a strong financial foundation:   Get organized. Smart money management begins with organizing your financial By grouping documents according to categories (e.g., insurance papers, account statements, bank statements, and tax returns), you will be able to find what you need quickly.   Determine your financial status. Once your files are organized, construct a net worth statement and a cash flow Your net worth is the difference between your assets (what you own) and your liabilities (what you owe). A cash flow statement itemizes all your sources of income (e.g., salary, interest, and rental income) and all your expenses (e.g., mortgage payments, food, clothing, etc.). A firm financial foundation includes having a positive net worth (meaning you own more than you owe) and positive cash flow (meaning you have more money coming in than going out). Even small steps toward improved money management can help you work towards a positive outcome. Look for areas where you can curb your expenses, and put that money toward savings.   Set financial goals. Once you become aware of your financial status, make the most of your money by establishing financial goals to direct your saving and spending patterns. Because your specific goals may change over time, be sure to re-evaluate your financial priorities on a regular basis.   Control your credit card spending. Although it is convenient

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