Job Changes… How Do You Roll With It?

May 4, 2017
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If you’ve changed employers, you may be wondering what to do with your 401(k) plan. It’s important to understand your options. You should ask yourself the following questions:

  1. Do I have all of the information needed to make an informed decision?
  2. What are the implications of my decision?

If you leave your company, you’ll be entitled to a distribution of your vested balance. Your vested balance always includes your own contributions (pre-tax, after-tax, and Roth) and typically any investment earnings on those amounts. It also includes employer contributions and earnings that have satisfied your plan’s vesting schedule. Depending how your particular plan’s vesting schedule works, you’ll forfeit any employer contributions that haven’t vested by the time you change employers. If you’re on the cusp of vesting, it may make sense to wait a bit before leaving your company.

Don’t Spend It, Roll It!
While this pool of dollars may look attractive, don’t spend it unless you absolutely need to. If you take a distribution you’ll be taxed, at ordinary income tax rates, on the entire value of your account except for any after-tax or Roth 401(k) contributions you’ve made. Additionally, if you’re not yet age 55, an additional 10% penalty may apply to the taxable portion of your payout. Special rules may apply if you receive a lump-sum distribution and you were born before 1936, or if the lump-sum includes employer stock.

If your vested balance is more than $5,000, you can leave your money in your employer’s plan until you reach normal retirement age, but your employer must also allow you to make a direct rollover to an IRA or to another employer’s 401(k) plan. In a direct rollover, the money passes directly from your 401(k) plan account to the IRA or other plan.

Reasons to Roll Over to an IRA:
You generally have more investment choices with an IRA than with an employer’s 401(k) plan. You typically may freely move your money around to the various investments offered by your IRA trustee, and you may divide up your balance among as many of those investments as you want. By contrast, employer-sponsored plans typically give you a limited menu of investments from which to choose.

An IRA may give you more flexibility with distributions. Your distribution options in a 401(k) plan depend on the terms of that particular plan, and your options may be limited. However, with an IRA, the timing and amount of distributions is generally at your discretion (until you reach age 70½ and must start taking required minimum distributions in the case of a traditional IRA).

You can roll over (essentially “convert”) your 401(k) plan distribution to a Roth IRA. You’ll generally have to pay taxes on the amount you roll over (minus any after-tax contributions you’ve made), but any qualified distributions from the Roth IRA in the future will be tax free.

Reasons to Roll Over to Your new Employer’s 401(K) Plan:
Many employer-sponsored plans have loan provisions. If you roll over your retirement funds to a new employer’s plan that permits loans, you may be able to borrow up to 50% of the amount you roll over if you need the money. You can’t borrow from an IRA—you can only access the money in an IRA by taking a distribution, which may be subject to income tax and penalties. You can, however, give yourself a short-term loan from an IRA by taking a distribution, and then rolling the dollars back to an IRA within 60 days.)

You may be able to postpone required minimum distributions. For traditional IRAs, these distributions must begin by April 1 following the year you reach age 70½. However, if you work past that age and are still participating in your employer’s 401(k) plan, you can delay your first distribution from that plan until April 1 following the year of your retirement. (You also must own no more than 5% of the company.

Finally, when evaluating whether to initiate a rollover, always be sure to:

  1. Ask about possible surrender charges that may be imposed by your employer plan, or new surrender charges that your IRA may impose.
  2. Compare investment fees and expenses charged by your IRA (and investment funds) with those charged by your employer plan (if any).
  3. Understand any accumulated rights or guarantees that you may be giving up by transferring funds out of your employer plan.

The information above is intended to assist in making an informed decision, but consult your own advisor or contact HFG Wealth Management for a consultation. At HFG Wealth Management, we embrace a more holistic method of financial planning known as Financial Life Planning™. We believe this is a financially effective and personally rewarding approach to creating a practical, lasting financial plan. As financial professionals using the life planning approach, our purpose is to assist individuals and families in creating a long-term vision that is consistent with their core values. At HFG we recognize that life events and life transitions can impact your financial responsibilities and your vision of the future. We are here to provide you with tips and strategies to get you started and help you reach your financial and life goals at every stage. For more information, please visit www.hfgwm.com or call 832.585.0110

An Overview of Asset Strategies


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Asset transfers are an important part of financial planning. As you move through life, you are constantly acquiring and disposing of assets until that final transfer takes place—the one you’re not around to see.  You may need to transfer assets for all sorts of reasons. A working knowledge of various transfer techniques can help you determine when it’s appropriate to move money around. Some asset transfers are initiated as a result of a life event or other major decision. Others are suggested by attorneys or financial advisors as a way to better arrange your affairs. Some asset transfers are as easy as handing a tangible item over to another individual.

Here is an overview of asset transfers—the tip of the iceberg, if you will. Many of the regulations governing asset transfers are state laws, so your best bet is to check with your financial advisor and a good attorney—several of them, actually, in different specialties—who can guide you through the transfer process.

There are lots of reasons why people transfer assets. Here are some of them.

  • Marriage or cohabitation. You want to put a new spouse or partner’s name on the title.
  • A couple wants to divide joint property between the two spouses and retitle it in separate names.
  • Buyout (or sale to) co-owner. One of two co-owners wants to own full rights to the asset.
  • Anticipation of incapacity or death. An elderly person wants to put a son or daughter on the title for ease of transfer.
  • Establishment of a trust. There are many reasons for forming a trust; assets must be retitled in order to be transferred into the trust.
  • Establishment of a private annuity. You need income and want to keep assets in the family; assets are sold to family members in exchange for regular payments.
  • Reduction of estate taxes. You may want to remove assets from your estate in order to reduce the amount subject to estate tax.
  • Reduction of income taxes. You may want to transfer assets to a low-bracket family member so investment earnings will be taxed at a lower rate.
  • Medicaid eligibility. You may want to reduce the amount of “countable assets” so that Medicaid will pay for nursing home care.
  • You may need to meet the state’s asset requirement laws in order to discharge debts or other obligations.
  • Anticipation of lawsuits. You might need to protect assets from judgments (applicable to people in high-risk occupations, such as surgeons).
  • You may want to gift securities or other property to an individual or to charity.
  • Cash or asset exchange. You may want to sell an asset for cash and/or buy a different asset.

It would seem that if an individual wants to get rid of an asset or if two individuals want to enter into a private transaction, they ought to be able to do it with ease. For smaller transactions, they can. For instance, gift giving at birthdays and holidays would normally be exempt from asset-transfer laws.

In some transfer situations, however, there’s opportunity for tax evasion, taking advantage of people, or exploiting laws that are designed to help the needy. In those cases, certain procedures must be followed. And to make sure they are, the transfer process itself—the physical transfer of title to another person—may be extremely complex and not possible to complete without the help of an attorney, escrow officer, transfer agent, or other intermediary. Even so, the intermediary arranging for the transfer may not be obligated to warn clients of the various tax and legal ramifications—in some cases he or she may simply be following instructions to transfer title—so it is up to you to know the law or obtain legal counsel.

Here are a few of the common considerations involved in asset transfers:

Gift tax

If you are thinking about transferring assets to family members to save income or estate taxes or to facilitate transfer later on, then you should be aware of gift tax rules. In 2016, any gift to an individual that exceeds $14,000 for the year ($28,000 for joint gifts by married couples) applies against the lifetime gift tax exclusion and requires the filing of.  Form 709 for the year in which the gift was made. The gift tax does not need to be paid at the time Form 709 is filed, unless the client has exceeded the lifetime gift tax exclusion of $5.45 million in 2016 (adjusted annually for inflation).

The annual gift tax exclusion—the amount that may be given away without eating into the lifetime exclusion—is adjusted for inflation in $1,000 increments. Transfers to spouses who are U.S. citizens and to charitable organizations are exempt from gift tax. Payments made directly to an educational or health care institution are also exempt from gift tax. Property exchanged for equivalent value (as in a sale to another party) is not subject to gift tax. However, low-interest loans to family members may be subject to gift tax. Complicated transactions like these require advice.

Kiddie tax

The practice of transferring assets to children to avoid income tax on investment earnings is less popular now, because for 2016 investment income exceeding $2,100 earned by qualified children is taxed at the parents’ rate. The first $1,050 is tax free, the next $1,050 is taxed at the child’s rate, and the remaining income is taxable to the parents. The kiddie tax is also subject to inflation adjustments in $50 increments. It’s certainly possible to get around the kiddie tax by investing in assets that don’t pay current income—but then what’s the point of transferring assets to children, especially when parents must think about funding college.

Financial aid

The formula that determines need-based aid factors is a much higher percentage of assets when they belong to children (20%) as opposed to parents (5.64%). So the classic financial aid strategy is to keep assets away from children and haave parents’ assets in retirement plans, home equity and other exempt assets.

What if a child already has significant assets—say, in an UGMA or UTMA account? Is there any way to get them out of the child’s name? Probably not at least not until the child turns 18 or 21 and has the legal authority to transfer property. But by then it may be too late for financial aid, since schools look at the family’s financial picture as early as the student’s junior year of high school. Any parent who wants to maintain maximum financial aid flexibility (and this includes need-based scholarships, not just loans) should think twice before transferring assets to children.

Medicaid

Medicaid is designed for people with few assets who can’t afford to pay for custodial care. In the past, people had to “spend down” to such small amounts that often the healthy spouse was left nearly destitute. This led to rampant asset transfers and big business in “Medicaid planning.” However, the laws have been liberalized in recent years to better protect the healthy spouse, so asset-transfer gimmicks have waned somewhat. In any case, clients contemplating asset transfers in anticipation of applying for Medicaid need to be aware of “look back” laws—60 months for transfers to individuals (with some exceptions if the transfer is to a child under 21 or a child of any age who is blind or disabled) and trusts.

Bankruptcy

Each state has its own laws relating to how much property a client can keep and still discharge debts in bankruptcy. These laws also address property. The main point to understand is that asset transfers may not be as straightforward as you think, and some transfers may have unintended consequences. At the same time, strategies you may not have considered could provide the perfect financial planning tools. At HFG Wealth Management, we embrace a holistic method of financial planning known as Financial Life Planning™. We believe this is a financially effective and personally rewarding approach to creating a practical, lasting financial plan. As financial professionals using the life planning approach, our purpose is to assist individuals and families in creating a long-term vision that is consistent with their core values.

At HFG we recognize that life events and life transitions can impact your financial responsibilities and your vision of the future. We are here to provide you with tips and strategies to get you started and help you reach your financial and life goals at every stage. For more information, please visit www.hfgwm.com or call 832.585.0110.

Five Questions To Ask Before You Retire


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The first step in any retirement income plan is to envision your retirement and make some decisions about how you will live. If the numbers don’t support the life you have in mind, now is the time to find out. Adjustments can always be made, whether it means working a little longer now in order to avoid working later, or scaling back your lifestyle in order to retire a little sooner. The more accurately you can answer these questions, the more likely you are to create a retirement income plan that will sustain you throughout life.

Where will you live?
The answer to this question affects not only housing costs, but other living costs as well. Whether you choose to move or stay put, consider the following:

  • Proximity to children and grandchildren. If you live far away from the kids, you’ll need to build travel costs into your budget and/or have extra space in your home for when the family comes to visit.
  • Affordability. Many people opt for more affordable living costs when they retire. Key factors in assessing a location’s living costs are the price of housing; the cost of food, utilities and transportation; and taxes (state income tax, property tax and sales tax).
  • Employment and business opportunities. If you plan to work during retirement, consider the job market for the type of work you want to do, or the business climate if you plan on starting a new business. This factor is often contrary to affordability: the towns with the lowest cost of living generally have the most limited employment and business opportunities; if you are looking for work that pays well or an active market for your product or service, you may have to choose a less affordable city.
  • Travel plans. If travel is expected to play a big part in your retirement plans, you might opt for an inexpensive condo near the airport (with no plants or pets), at least until the wanderlust subsides. If and when it does, you can reconsider the housing question again.
  • General preferences. Otherwise, consider the classic criteria for choosing retirement location. These include climate, cultural and recreational opportunities, access to medical care and other lifestyle issues.

What will you do?
How you plan to spend your time in retirement will largely determine how much income you’ll need. One way to look at this is to ask if your anticipated activities will add to the expense side or the income side of your retirement budget.

  • Expense-generating activities. The classic life of leisure can be expensive! Unless you plan to spend your days reading, walking and visiting with friends, you may be facing higher than-anticipated costs for travel, hobbies, and entertainment. Even classic low-cost activities such as gardening have associated expenses. This is not to say you shouldn’t enjoy yourself during retirement; it’s just that these expenses will have to be factored into the budget.
  • Income-generating activities. If you like to work, why not make that one of your primary activities during retirement? It’ll save money on hobbies and entertainment and generate income to boot. Even volunteer work pays off if it keeps you from engaging in expensive activities. If one of your goals is to start a business in retirement, hopefully it will count as an income generating activity. But you may need to prepare for several years of start-up expenses before the business becomes profitable.

How well will you live?
Living well is in the mind of the beholder. As you contemplate retirement, consider how you will live your life.

  • The simple life. Some retirees look forward to scaling back in retirement in order to reduce expenses and have what they would deem a very rich life. Grow your own vegetables. Prepare meals at home. Ride your bike. Take long walks. Read good books. You can do a lot with a little. Whether it arises from lifestyle choice or financial need, the simple life holds appeal for many.
  • The high life. On the other hand, some retirees who have been chained to an office for several decades may see retirement as their chance to live it up. Backed by a healthy retirement account and the income to support their chosen lifestyle, they may eat out more, take more vacations, explore expensive hobbies and generally live their dream. If you can afford the high life, more power to you.

How long do you expect to live?
This is the million-dollar question that, if answerable, would make retirement planning so much easier. Unfortunately, people are often misled by tables that show the median life expectancy. It has virtually no bearing on any individual’s true life expectancy. The safe route is to plan for retirement income to last to age 95 or 100.

What surprises does life hold in store? What unexpected events might you anticipate as you move through life?

  • Your health. Your genes, your health history and your lifestyle may provide some clues as to how your health will hold up as you grow older, but this is always a wild card in retirement planning. Fortunately, Medicare and supplemental insurance can take care of the major costs. Ironically, the healthier you are, the more likely you are to need long-term care later in life as the frailties that come with natural aging prevent you from performing activities of daily living such as bathing and dressing. It is often the oldest of the old who need the custodial care at the end of life. Medicare does not pay for this.
  • Your family. You never know when a family member might need your help. If your parents are still living, one or both might need personal or financial support as they age. And your children aren’t immune to life’s surprises either. A job loss, divorce, or health shock could send them to you for help just when you think your life is on an even keel. On the bright side, another grandchild or three could demand resources from you in a good way, depending on how generous you want to be.
  • The economy. Some say the financial crisis of 2008 was predictable; others say they never saw it coming. The lesson that came out of it is that anything can happen, including events beyond our wildest imagination. Adaptability is the key to managing life and money in the 21st Century. Pay attention and be ready to respond.

At HFG Wealth Management, we embrace a holistic method of financial planning known as Financial Life Planning™. We believe this is a financially effective and personally rewarding approach to creating a practical, lasting financial plan. As financial professionals using the life planning approach, our purpose is to assist individuals and families in creating a long-term vision that is consistent with their core values. At HFG we recognize that life events and life transitions can impact your financial responsibilities and your vision of the future. We are here to provide you with tips and strategies to get you started and help you reach your financial and life goals at every stage. For more information, please visit www.hfgwm.com or call 832.585.0110.

Robo-Advisors vs. Human Advisors

April 24, 2017
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Investors have a choice today that they did not have a decade ago. They can seek investing and retirement planning guidance from a human financial advisor or put their invested assets in the hands of a robo-advisor – a software program that maintains their portfolio.

Why would an investor want to leave all that decision making up to a computer? In this era of cybercrime and “flash crashes” on Wall Street, doesn’t that seem a little chancy?  No, not to the financial firms touting robo-advisors. They are wooing millennials, in particular. Some robo-advisor accounts offer very low minimums and fees, and younger investors who want to “set it and forget it” or have their asset allocations gradually adjusted with time represent the prime market.

A cost-conscious investor may ask, “What’s so bad about using a robo-advisor?” After all, taxpayers and tax preparers use tax prep software to fill out 1040 forms each year, and that seems to work well. Why shouldn’t investors rely on investment software?

The problem is the lack of a human element. Investors at all stages of life appreciate when a financial professional takes time to understand them, to know their goals and their story. A software program cannot gain that understanding, even with input from a questionnaire.

The closer you get to retirement age, the less appealing a robo-advisor becomes. The software can’t yet perform retirement planning – and after 50, people have financial concerns far beyond investment yields. Software planning does not equal retirement planning, estate planning or risk management.

Additionally, robo-advisors have never faced a down market. They first appeared in 2010. Passive investment management is one of their hallmarks. How skillfully will their algorithms respond and rebalance a portfolio when the bears come out?

Does a robo-advisor have a fiduciary duty? Many investment and retirement planning professionals assume a fiduciary role for their clients. They have an ethical and legal duty to provide advice that is in the client’s best interest. How many robo-advisors have developed the discernment to do this?

The robo-advisor “revolution” may be fleeting. Why, exactly? The whole robo-advisor business model may invite the demise of many of these firms. Ultimately, robo-advisors may be remembered for the way they stimulated the financial services giants to offer low-minimum, low-cost investment tools. It appears the traditional approach of working with a human financial advisor may be hard to disrupt. The opportunity to draw on experience, to have a conversation with a professional who has seen his or her clients go through the whole arc of retirement, is so essential.

At HFG Wealth Management, we embrace a holistic method of financial planning known as Financial Life Planning™. We believe this is a financially effective and personally rewarding approach to creating a practical, lasting financial plan. As financial professionals using the life planning approach, our purpose is to assist individuals and families in creating a long-term vision that is consistent with their core values. At HFG we recognize that life events and life transitions can impact your financial responsibilities and your vision of the future. We are here to provide you with tips and strategies to get you started and help you reach your financial and life goals at every stage. For more information, please visit www.hfgwm.com or call 832.585.0110.

Is the Fiduciary Standard a Plus for Investors?

April 23, 2017
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Will it make a difference in the quality of the advice they receive?

Next year, the Department of Labor is scheduled to introduce new rules regarding retirement planning. Under these rules, any financial services industry professional who makes investment recommendations to workplace retirement plan participants or IRA owners in exchange for compensation will be considered a fiduciary. What does that mean? It means that this person has an ethical and legal duty to provide advice that is in your best interest.

Many investment and retirement planning professionals have reacted to the DoL’s move with “We already do that.” After all, the suitability standard – something very close to a fiduciary standard – has been in place in the financial services industry for decades, and numerous financial services professionals already serve their clients as fiduciaries.

Detractors think the new rules amount to overkill, and they argue that an-across-the-board fiduciary standard will not make a difference in the quality of retirement planning or investment advice that retirement savers receive. The legal implications of the new rules may send retirement planning fees higher, and another effect might be that fewer retirement savers have access to these services.

So, what positive difference could a fiduciary standard make? It could lessen the potential for conflicts of interest creeping into an advisor-client relationship.  The suitability standard emerged in the brokerage industry decades ago. It guides a financial services professional to recommend only investments that are “suitable” for a particular client, given his or her age, income, goals, and net worth.

The DoL sees a shortcoming in the suitability standard. Suppose there are multiple “suitable” investments that a retirement planner could recommended to a retirement saver (a common occurrence). Under the suitability standard, what is to prevent a retirement planner from suggesting and recommending the investment that could result in the most compensation for him or her, over the others? What if the alternate investment options are never mentioned? If this sort of thing happens, is the investment recommendation being made truly one in the client’s best interest?

In theory, the installation of a wide-ranging fiduciary standard takes the potential for conflicts of interest out of retirement planning. It also encourages even more retirement planners to charge fees for services, rather than earning some or even all of their incomes from commissions.   This encouragement will likely sit well with most investors, who naturally want less potential for conflict of interest. It is also sitting well with many retirement planners. While exemptions to the rules can be made and while the rules will not apply to existing investment assets, the implementation of a broad fiduciary standard for retirement planning is good news and reduces potential dissonance in the relationship between the retirement planner and the retirement saver.

At HFG Wealth Management, we embrace a holistic method of financial planning known as Financial Life Planning™. We believe this is a financially effective and personally rewarding approach to creating a practical, lasting financial plan. As financial professionals using the life planning approach, our purpose is to assist individuals and families in creating a long-term vision that is consistent with their core values. At HFG we recognize that life events and life transitions can impact your financial responsibilities and your vision of the future. We are here to provide you with tips and strategies to get you started and help you reach your financial and life goals at every stage. For more information, please visit www.hfgwm.com or call 832.585.0110.

 

HFG Wealth Management Named Houston Five Star Wealth Manager

April 17, 2017
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Larry Harvey of HFG Wealth Management Selected To Attend Barron’s Top Independent Advisors Summit

April 3, 2017
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The Woodlands, TX — Larry Harvey, Founder and CEO of HFG Wealth Management, LLC has been selected to attend the Top Independent Advisors Summit hosted by Barron’s magazine. Attendees attend workshops that explore current issues from state of the economy, overseeing high-net-worth accounts and families, to portfolio management and retirement planning. The invitation-only conference is held annually in March.  The Barron’s Top Independent Advisors Summit provides highly detailed and thought-provoking perspectives from top advisors on managing investments, clients and practices.  Much of the content is delivered by members of Barron’s Top Independent Advisors, making this conference an extraordinary opportunity to share thoughts with peers and hear what is on the minds of leading practitioners in the industry as they move forward in the ever-changing market.

This annual conference is the basis for the Top Independent Advisors Summit and the advisors are chosen based on the volume of assets overseen by the advisors and their teams and the quality of the advisors’ practices. The Top 100 Independent Advisors are comprised of Registered Independent Advisors and Advisors from Independent Broker Dealers.

“I am extremely honored to once again be selected to be among the Top Independent Advisors in the country.  I am grateful for the opportunity to gain further insight on how HFG Wealth Management as an independent, objective fee-only wealth management firm can best serve our clients and their needs,” said Harvey.

Larry Harvey of HFG Wealth Management, LLC was one of approximately 400 financial advisors who were either selected by Barron’s or their affiliated firm to participate in the event. For more information about HFG Wealth Management, LLC, please visit www.hfgwm.com

Which Financial Documents Should You Keep On File?

March 27, 2017
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… and for how long?

 You might be surprised how many people have financial documents scattered all over the house – on the kitchen table, underneath old newspapers, in the hall closet, in the basement. If this describes your financial “filing system,” you may have a tough time keeping tabs on your financial life.

Organization will help you, your advisors … and even your heirs. If you’ve got a meeting scheduled with an accountant, financial consultant, mortgage lender or insurance agent, spare yourself a last-minute scavenger hunt. Take an hour or two to put things in good order. If nothing else, do it for your heirs. When you pass, they will be contending with emotions and won’t want to search through your house for this or that piece of paper.

One large file cabinet may suffice. You might prefer a few storage boxes, or stackable units sold at your local big-box retailer. Whatever you choose, here is what should go inside:

  • Investment statements. Organize them by type: IRA statements, 401(k) statements, mutual fund statements. The annual statements are the ones that really matter; you may decide to forego filing the quarterlies or monthlies.. In addition, you will want to retain any record of your original investment in a fund or a stock. (This will help you determine capital gains or losses. Your annual statement will show you the dividend or capital gains distribution.)
  • Bank statements. If you have any fear of being audited, keep the last three years’ worth of them on file. You may question whether the paper trail has to be that long, but under certain circumstances (lawsuit, divorce, past debts) it may be wise to keep more than three years of statements on file.
  • Credit card statements. These are less necessary to have around than many people think, but you might want to keep any statements detailing tax-related purchases for up to seven years.
  • Mortgage documents, mortgage statements and HELOC statements. As a rule, keep mortgage statements for the ownership period of the property plus seven years. As for your mortgage documents, you may wish to keep them for the ownership period of the property plus ten years (though your county recorder’s office likely has copies).
  • Your annual Social Security benefits statement. Keep the most recent one, as it shows your earnings record from the day you started working. Please note, however: if you see an error, you will want to have your W-2 or tax return for the particular year on hand to help Social Security correct it.
  • Federal and state tax returns. The IRS wants you to hang onto your returns until the period of limitations runs out – that is, the time frame in which you can claim a credit or refund. Keep three years of federal (and state) tax records on hand, and up to seven years to be really safe. Tax records pertaining to real property or “real assets” should be kept for as long as you own the asset (and for at least seven years after you sell, exchange or liquidate it).
  • Payroll statements. What if you own a business or are self-employed? Retain your payroll statements for seven years or longer.
  • Employee benefits statements. Does your company issue these to you annually or quarterly? Keep at least the most recent year-end statement on file.
  • Insurances. Life, disability, health, auto, home … you want the policies on file, and you want policy information on hand for the life of the policy plus three years.
  • Medical records and health insurance. The consensus says you should keep these documents around for five years after the surgery or the end of treatment. If you think you can claim medical expenses on your federal return, keep them for seven years.
  • Warranties. You only need them until they expire. When they expire, toss them.
  • Utility bills. Do you need to keep these around for more than a month? No, you really don’t. Check last month’s statement against this month’s, then get rid of last month’s bill.

If this seems like too much paper to file, buy a sheet-fed scanner. If you want to get really sophisticated, you can buy one of these and use it to put financial records on your computer. You might want to have the hard copies on file just in case your hard drive and/or your flash drive go awry.  All of this to say, organization is key in keeping financial documents on file.

At HFG Wealth Management, we embrace a holistic method of financial planning known as Financial Life Planning™. We believe this is a financially effective and personally rewarding approach to creating a practical, lasting financial plan. As financial professionals using the life planning approach, our purpose is to assist individuals and families in creating a long-term vision that is consistent with their core values. At HFG we recognize that life events and life transitions can impact your financial responsibilities and your vision of the future. We are here to provide you with tips and strategies to get you started and help you reach your financial and life goals at every stage. For more information, please visit www.hfgwm.com or call 832.585.0110.

10 Financial Resolutions and Tax Changes to Consider for 2017

March 20, 2017
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The year 2017 promises to be a time of change. Based on Trump’s campaign promises and recent actions, we can expect substantial tax reform and a significant rollback of Obamacare in the first half of the year. We will address those changes as they come. In the meantime, here are 10 of the most critical current tax rules and changes for 2017 that affect every high-net-worth taxpayer.

1. Income taxes
For 2017, income tax brackets have widened slightly due to inflation, but tax rates haven’t changed.

The standard deduction did increase slightly:

  • Married couples get $12,700, plus $1,250 for each spouse if age 65 and up.
  • Singles get $6,350, and $7,900 (not surviving spouse) if age 65 and up.
  • Heads of household get $9,350, plus $1,550 once they attain age 65.

Personal exemptions stay the same at $4,050 for taxpayers and dependents

2. Dividend and capital gains tax rates were adjusted for inflation
Dividend and capital gains rates remain the same other than being adjusted for inflation.

Investors who are in the 39.6% income tax bracket will pay a 20% tax rate for qualified dividends and long-term capital gains. The 20% top rate on dividends and long-term gains stays the same, but begins at higher amounts for:

  • Singles with taxable income above $418,400
  • Heads of household with taxable income above $444,550
  • Joint filers with taxable income above $470,700

Investors who fall between the 25% to 39.6% tax brackets will pay a 15% tax rate on qualified dividends and long-term gains. Investors in the 10% and 15% tax bracket will pay 0% tax on dividends and long-term capital gains.  Non-qualified dividends and ordinary income from taxable bonds will be taxed at an investor’s ordinary income tax rate.

3. IRA contributions always make sense when allowed
Contributions remain the same for 2017. For both traditional and Roth IRAs, investors can contribute $5,500 if they are under age 50, with a limit of $6,500 if they are over age 50. Note that the deadline to make an IRA contribution is April 18, 2017 for tax year 2016.

There are income limits for being able to deduct traditional IRA contributions, and these income limits have increased for 2017 as follows:

  • Singles and heads of household who contribute to a workplace retirement plan can claim a fully deductible contribution if their income falls below $62,000.
  • For married couples filing jointly, a spouse who contributes to a workplace retirement plan can claim a full deduction if their income falls below $99,000. From there, the deduction phases out between $99,000 to $119,000. If you can’t make a deductible IRA contribution, consider a nondeductible contribution.

Income limits pertaining to Roth IRA contributions have increased as follows:

  • Single filers earning less than $118,000 can make a full Roth IRA contribution, but contributions are eliminated for filers earning more than $133,000.
  • Married couples filing jointly can make a full contribution to a Roth IRA if their combined income is less than $186,000. However, they are ineligible to contribute if their income exceeds $196,000.

4. Maximize 401(k) contributions whenever possible
Contribution limits for 401(k), 403(b), and 457 plans remain unchanged for 2017. If an investor is under age 50, there’s an $18,000 contribution limit, with an additional $6,000 catch-up contribution limit if the investor is over age 50. The cap on SIMPLE plans remains at $12,500, and $15,500 for individuals age 50 and above. The base pay-in limit for defined contribution plans increased to $54,000.

5. Beware! Medical expense deductions and long-term care deductions have changed
Limits for deducting long-term care premiums have increased. Listed below is how much taxpayers can write off based on their age:

  • Age 71: $5,110
  • Age 61-70: $4,090
  • Age 51-60: $1,530
  • Age 41-50: $770
  • Age 40: $410

6. Health savings accounts still provide nice perks and long-term opportunities
In 2017, any health care plan with a deductible above $1,300 for individuals and $2,600 for families classifies as a high-deductible plan. For single coverage, a contribution of $3,400 can be made to an HSA. For family coverage, a contribution of up to $6,750 can be made. Investors age 55+ can make a catch-up contribution of $1,000 to an HSA.

7. Education savings can make a difference for parents and grandparents
You can contribute up to $14,000 annually to a 529 plan for a student without having the contribution count toward the gift tax. An up-front contribution toward a 529 Savings Plan can be made up to $70,000 on behalf of an individual, but this method eliminates further contributions for the next five years. The contribution doesn’t count toward gift tax. Keep in mind that there is a lot of flexibility with these accounts; the owner can transfer the funds to different family members. And if the account is not used, it can be transferred down to the next generation, which is great for estate-planning purposes.

8. Gift and estate taxes
The lifetime exclusion amount for the estate tax increased to $5.49 million per individual and portability is still available. The highest gift and estate tax rate is 40%.If taxpayers incur heavy estate-tax liability, they may qualify for an installment payment tax break. If one or more closely held businesses make up greater than 35% of an estate, $596,000 of tax can be deferred, and the IRS will charge only a 2% interest rate.

9. Good news for small businesses
Small businesses can once again use pretax funds to reimburse workers for health care costs, especially premiums for individual and family coverage. In a little noticed move, Congress late last year reauthorized Health Reimbursement Arrangements for businesses with fewer than 50 employees. As a result, these firms won’t risk large penalties on payments they provide to workers who purchase their own health insurance. Many of these firms don’t offer group health plans, and this law enables them still to offer a health care benefit.

10. Filing deadlines have changed
The filing deadline to submit 2016 tax returns is Tuesday, April 18, 2017, rather than the traditional April 15 date. In 2017, April 15 falls on a Saturday, and this would usually move the filing deadline to the following Monday—April 17. However, Emancipation Day, which is a legal holiday in the District of Columbia, will be observed on that Monday, pushing the nation’s filing deadline to Tuesday, April 18, 2017.

The following are a few other important deadlines to keep track of in 2017:

  • Taxpayers are able to request an additional six months to file their returns.
  • Employers are required to file W-2s with the federal government by January 31.
  • Partnership returns are due two-and-a-half months after year-end, and March 15 for calendar- year firms. Corporations can request a five-month extension.
  • The filing date for owners of foreign accounts has moved up to April 18.

There is one thing that we can count on. This year is sure to be filled with surprises. We will keep you updated once these changes surface.

At HFG Wealth Management, we embrace a more holistic method of financial planning known as Financial Life Planning™. We believe this is a financially effective and personally rewarding approach to creating a practical, lasting financial plan. As financial professionals using the life planning approach, our purpose is to assist individuals and families in creating a long-term vision that is consistent with their core values. At HFG we recognize that life events and life transitions can impact your financial responsibilities and your vision of the future. We are here to provide you with tips and strategies to get you started and help you reach your financial and life goals at every stage. For more information, please visit www.hfgwm.com or call 832.585.0110.

The Top Tax Frauds

March 19, 2017
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A look at the IRS list.

Have you heard of the “dirty dozen?” Each year, the IRS lists the top recurring federal tax offenses – frauds, cheats, feints and schemes that ethically challenged taxpayers, tax preparers and crooks try to perpetrate. Watch for these scams in all seasons, not just tax season.

  • Identity theft. Casually discarded or displayed personal information is an open invitation to criminals. Even when we are vigilant, multiple firewalls and strong passwords can fail to protect us.
  • Criminals posing as “tax professionals.” Each year, taxpayers get help with their 1040’s at tax preparation businesses. As the IRS notes, nearly all of these businesses are legitimate. Exceptions do exist; however, sometimes a fraudster will rent a storefront with a mission of collecting SSN’s and other personal information pursuant to claiming phony refunds.
  • Unwarranted or excessive refunds. Annually, some taxpayers and tax preparers claim refunds that are embellished or wholly unjustified. A preparer may tout that it will get you a big refund but then claim a percentage of it. Worse yet, they may ask you to sign a blank return.
  • Phishing. This is tax fraud via email. A scammer will send a message mimicking communication from the IRS or the Electronic Federal Tax Payment System (EFTPS). If you get an email like that, forward it to phishing@irs.gov. Neither the IRS nor the EFTPS has a policy of initiating contact with taxpayers through email.
  • Threatening calls. Crooks will sometimes target elders or immigrants with phone scams, pretending to be the IRS or another federal agency. (Sometimes even the caller ID will suggest this.) They will assert that the other party owes thousands in back taxes. The only solution, they contend, is immediate payment through a pre-loaded debit card or a money order. The caller may even know the last four digits of their Social Security Number or volunteer what is supposedly an IRS employee badge number to make the con more believable. A follow-up call from “the DMV” or “the police” may be next. Such behavior can be reported to the Treasury Inspector General for Tax Administration at (800) 366-4484 or the IRS at (800) 829-1040.
  • Sham charities.  A specious charity may ask you for cash, your SSN, your banking information and more. If anything seems fishy, ask for visual proof of the organization’s tax-exempt status, and check it out further at irs.gov using the Exempt Organizations Select Check search box.
  • Tax shelter schemes. Tax evasion is different from legal tax avoidance. Some unprincipled tax and estate “consultants” seem to confuse the two, much to the chagrin of their clients who run afoul of the IRS. Watch out for aggressively marketed “tax shelters” that seem too good to be true or sketchily detailed.
  • Hiding taxable income. How many taxpayers file fraudulent 1099’s? Any hint of bogus documentation to cut taxes or boost refunds becomes especially egregious when a paid preparer attempts it.
  • Inventing income that was never earned to get credits. The IRS notes that some of the shadier tax prep services sometimes convince clients to try this. It is fairly easy to disprove.
  • Claiming unwarranted fuel tax credits. Few taxpayers can legitimately claim these, yet some try thanks to urging from third-party preparers. Most taxpayers don’t own farms, mining or fishing businesses or companies whose vehicles operate mostly on local roads.
  • Frivolous arguments against income tax. Assorted seminar speakers and books claim that federal taxes are unconstitutional and that Americans have only an implied obligation to pay them.

One thing to remember in light of this list: you are legally responsible for the content input into your 1040 form, even if a third party prepares it.

At HFG Wealth Management, we embrace a holistic method of financial planning known as Financial Life Planning™. We believe this is a financially effective and personally rewarding approach to creating a practical, lasting financial plan. As financial professionals using the life planning approach, our purpose is to assist individuals and families in creating a long-term vision that is consistent with their core values. At HFG we recognize that life events and life transitions can impact your financial responsibilities and your vision of the future. We are here to provide you with tips and strategies to get you started and help you reach your financial and life goals at every stage. For more information, please visit www.hfgwm.com or call 832.585.0110.