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Did You Receive a Corrected Form 1098?

April 5, 2018
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You might get to deduct the mortgage interest premiums you paid in 2017 after all.

Recently, you may have received a corrected Internal Revenue Service Form 1098 from your mortgage lender. The correction probably spells good news for you.

When the Bipartisan Budget Act of 2018 became law in February, certain tax provisions that expired at the end of 2016 were retroactively renewed for the 2017 tax year. Among them: the tax break that allows homeowners to write off mortgage insurance premiums, or MIP.

You may be able to deduct MIP once more and save hundreds of dollars. If you are carrying a $200,000 home loan and you are in the 25% income tax bracket, you could save about $425 in federal taxes, thanks to the comeback of this deduction. You might even be able to deduct prepaid mortgage interest and points.

Your adjusted gross income may limit the amount of MIP you can write off. When it exceeds $100,000, the deduction enters a phase-out range. The top end of the phase-out range is $110,000; above that, the deduction for MIP disappears. Property value limits also apply.

The MIP deduction must pertain to a “qualified home.” That means a home that was your principal residence during 2017. (Even if you spent the bulk of 2017 in a vacation home, that vacation home could qualify.)

The I.R.S. told lenders to send corrected 1098s to borrowers by March 15. Your corrected 1098 shows you the MIP amount you paid in 2017, unlike the previous version. If you do not yet have a corrected Form 1098, contact your lender. (Lenders have been directed to file corrected 1098s with the reportable amounts by this year’s federal tax deadline.)

Have you already filed your 2017 federal taxes, and do you expect a refund? If your answer to both of those questions is “yes,” you will have to wait until you receive your federal tax refund before you can amend your 2017 federal tax return. (It can be amended any time during 2018.)

At HFG Wealth Management, we embrace a 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 information contain herein is general in nature and may not be suitable for everyone. We encourage you to give us a call, to discuss your specific situation and to help determine the appropriate course of action.”

 

 

 

Good Financial Steps to Take When You Get Married

March 14, 2018
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If you’re going to say “I do,” here are some things you might want to do.

Are you marrying soon? Have you recently married? As you begin your life together, it is important for you to start planning your financial future together and putting your finances on the same page. Here are some priorities you might want to write down on your financial to-do list.

Plan for retirement. There is a chance that decades from now, many of us who are currently saving and investing for the future might end up millionaires. Actually, we may need to become millionaires.

Why? Well, according to current Social Security Administration projections, today’s 65-year-old retiree is looking at a retirement of approximately 20 years. The average 65-year-old man is projected to live until age 84, and the average 65-year-old woman, to age 87. Some of these people will live past 100 – many more than in previous generations.

Given ongoing advances in health care, how long might you live? Living to be 90 or 100 might be commonplace for members of Gen X and Gen Y. Factor in inflation’s effect on the cost of goods and services, and you can see a possible scenario ahead where you might need, say, $100,000 or more a year for 30 years to have a nice retirement without outliving your money.

This (strong) possibility means you may want to make saving for retirement now a higher priority.

Often, one spouse is more risk averse than the other. So, you need to agree on the investment approach you take, preferably with the help of a financial professional who can help you determine how much money you might need for certain life goals or financial objectives.

Manage debt. Many of us go through life shouldering five-figure or even six-figure debts. When couples marry, the danger is that one spouse’s debt will be viewed as “his debt” or “her debt.” Arguments may start because “your debt” is hurting “us.”

Debt management should be a priority for any newly married couple. There are debts, which we assume on the way to a positive result (such as a mortgage), but there are also those we assume through our credit cards and other channels, which may not benefit us in the long term.

Live within your means. An established, mutually-agreed-upon budget can be very helpful in this regard. Different people have different levels of thrift and different perceptions of what a “bargain” looks like. This perception gap can result in some interesting financial moments in your life – your spouse may pick up a “bargain” that you would call an extravagance.

Save for college. If you plan to raise children, it is never too soon to start. You can do it a little at a time, a little per month. You can open a college savings account with equity investment options or investment options that pose lower risks. A 529 plan may offer some fine tax breaks.

Insure yourself. If you are under 40, you may not have any kind of disability or life insurance. Now may be the right time to buy some. Getting a policy early can be cost efficient: if you buy a term life policy (or even a permanent life policy) when you are young and healthy, chances are you will pay less expensive premiums than people over age 40 who may be obese, diabetic, or heavy smokers or drinkers.

Communicate to avoid surprises. No matter how much of a “we” a couple becomes, there is always the need for some private space, some individual pursuits and “me time.” Regarding your shared financial life, however, this is probably not the best approach. When a spouse starts to hide a money-related matter or omit it from conversations, it may open the door to troubles. Open, frank conversations about money may be the best way to avoid problems in your finances (as well as your relationship).

Build an emergency fund. Too many couples live on margin. Consider building up a cash reserve (gradually, if necessary) that you could tap into should things get rough. You will not regret having it around.

At HFG Wealth Management, we embrace a 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 information contain herein is general in nature and may not be suitable for everyone. We encourage you to give us a call, to discuss your specific situation and to help determine the appropriate course of action.”

 

Financial Steps to Take Before a Divorce


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Wise moves to make before things are finalized.

Before your divorce goes through, it will be wise to check up on financial matters. It will be better to assess the state of your financial life before the split rather than after.

Find out where you stand financially. Beyond your salary and your bank accounts, how much do you have in the way of retirement savings? What will your monthly income be? What investments do you hold? Will you retain ownership of any real estate, and assume the mortgage payments yourself? Will you be selling any assets or ownership interests?

You should document everything about your personal finances. Everything you can think of. Whether you scan it or copy it, you should have as complete a picture of your financial life as possible.

The picture of your financial life should also detail your credit & insurance. Do you know your credit score? Today, a good credit score is considered anything north of 690. If you have a score in the mid-600s, you have fair credit. Below 630, you have poor credit.

Track your credit before & after your divorce. There are three major credit reporting agencies that assign you credit ratings: Equifax, TransUnion, and Experian. You may request a copy of your credit report every 12 months from the three reporting agencies; you are entitled to it, by law. Ask all three for such a report, if you haven’t already. If your ex-spouse attempts to add some unauthorized debt in your name, this is one way to know about it.

Do you have your own health insurance? If so, how much do you pay for it per month? If not, you may have a challenge to secure it – hopefully, your health or employment situation allows you to get coverage without many obstacles. Apart from health coverage, other types of insurance have no doubt protected other people and important items in your household. Who owns these policies? The beneficiary designations on the policies will undoubtedly need to change.

What should you do about taxes? If you are divorcing after April, should you and your spouse file one more joint return? This calls for a chat with your tax professional. Filing jointly could of course save you money compared to filing singly, but it also means you are jointly responsible for everything on that 1040 form.

If you remain legally married and living with each other when a calendar year ends, the two of you must file your federal tax return for that year as a married couple – your filing status will either be married filing jointly or married filing separately. If you think you will receive a refund, you and your former spouse will have to communicate to see how it will be divided – the IRS does not allocate refunds to divorced spouses by any kind of formula.

If you will have primary custody of your children, the IRS expects that you will claim the exemption for dependent children on your 1040 form. If you have multiple children, it is allowable for you and your former spouse to divide the per-child exemptions as you see fit. If you paid some or all of the medical expenses for one of your children, you can deduct those expenses even if your ex-spouse has primary custody of that child.

Most importantly, assess what your financial potential will be after the divorce. An “equal” settlement is not always an equitable one, as one spouse may be left with much greater potential to build and retain wealth than the other. That is the most important long-term issue to address, and it should be addressed well before a divorce is finalized.

At HFG Wealth Management, we embrace a 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 information contain herein is general in nature and may not be suitable for everyone. We encourage you to give us a call, to discuss your specific situation and to help determine the appropriate course of action.”

 

Educational Tax Credits


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It’s tax time, and your kitchen table is littered with papers and forms. As if this isn’t bad enough, you recently paid your child’s college semester bill, and you don’t know where you’ll find the money to pay the taxes that you expect to owe. Well, you might finally catch a break. Now that your child is in college, you might qualify for one of two education tax credits — the American Opportunity credit and the Lifetime Learning credit. And because a tax credit is a dollar-for-dollar reduction against taxes owed, it’s more favorable than a tax deduction, which simply reduces the total income on which your tax is based.

American Opportunity credit
The American Opportunity credit is a tax credit that covers the first four years of your, your spouse’s or your child’s undergraduate education. Graduate and professional courses aren’t eligible. The credit is worth a maximum of $2,500. It’s calculated as 100% of the first $2,000 of tuition and related expenses that you’ve paid for the year, plus 25% of the next $2,000 of such expenses.

To take the credit, both you and your child must clear some hurdles:

  • To qualify for the maximum American Opportunity credit in 2018, your MAGI must be below $80,000 if you’re a single filer and $160,000 if you’re a joint filer. A partial credit is available for single filers with a MAGI between $80,000 and $90,000 and joint filers with a MAGI between $160,000 and $180,000.
  • Your child must attend an eligible educational institution as defined by the IRS (generally, any post-secondary school that offers a degree program and is eligible to participate in federal aid programs qualifies).
  • Your child must attend college on at least a half-time basis.
  • Your child can’t have a felony conviction.
  • You must claim your child as a dependent on your tax return. If your child has paid the tuition expenses, you can still take the credit as long as you claim your child as a dependent on your return. But if your child has paid the tuition expenses and isn’t claimed as a dependent on your return, your child can take the credit on his or her own return.

The American Opportunity credit can be taken for more than one student in the same year, provided each student qualifies independently. So, if you have twins who are in their freshman year of college (and you otherwise meet the requirements), your credit would be worth $5,000.

However, there are other restrictions. You can’t take both the American Opportunity credit and the Lifetime Learning credit in the same year for the same student. And whatever education expenses you cover with a tax-free distribution from your 529 plan or Coverdell education savings account can’t be the same expenses you use to qualify for the American Opportunity credit.

Lifetime Learning credit
The Lifetime Learning credit is a tax credit for the qualified education expenses that you, your spouse, or your child incur for courses taken to improve or acquire job skills (even courses related to sports, games, or hobbies qualify if they meet this requirement!). The Lifetime Learning credit is less restrictive than the American Opportunity credit. In addition to college expenses, the Lifetime Learning credit covers the tuition expenses of graduate students and students enrolled less than half-time.

The Lifetime Learning credit is generally worth a maximum of $2,000. It’s calculated as 20% of the first $10,000 of tuition and related expenses that you’ve paid for the year.

One major difference between the American Opportunity credit and the Lifetime Learning credit is that the Lifetime Learning credit is generally limited to a total of $2,000 per tax return, regardless of the number of students in a family who may qualify in a given year. So if you have twins who are in their senior year of college, your Lifetime Learning credit would be worth $2,000, not $4,000.

To qualify for the maximum Lifetime Learning credit  in 2018, your MAGI must be below $57,000 if you’re a single filer and $114,000 if you’re a joint filer. A partial credit is available for single filers with a MAGI between $57,000 and $67,000 and joint filers with a MAGI between $114,000 and $134,000.

As with the American Opportunity credit, if you withdraw money from your 529 plan or Coverdell ESA in the same year that you claim the Lifetime Learning credit, your withdrawal cannot cover the same expenses that you use to qualify for the Lifetime Learning credit.

My child is in college–how do I know which credit to take?
The American Opportunity credit and the Lifetime Learning credit cannot be claimed in the same year for the same student, so you’ll need to pick one. Because the American Opportunity tax credit is available for all four years of undergraduate education, is worth more ($2,500 vs. $2,000), and the income limits to qualify are higher, that credit will probably be your first choice. But if your child is attending school less than half-time, the Lifetime Learning credit will be your only option (assuming you meet the income limits).

How do I claim either credit on my tax return?
Every year that you pay college tuition you should receive Form 1098-T from the college, showing the tuition expenses you’ve paid for the year. Then, at tax time, you must file Form 8863 to take either credit. If you are married, you must file a joint return to take either credit. For more information, see IRS Publication 970 or consult a tax professional.

At HFG Wealth Management, we embrace a 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 information contain herein is general in nature and may not be suitable for everyone. We encourage you to give us a call, to discuss your specific situation and to help determine the appropriate course of action.”

 

Housing Options for Older Individuals

March 13, 2018
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As you grow older, your housing needs may change. Maybe you’ll get tired of doing yardwork. You might want to retire in sunny Florida or live close to your grandchildren in Illinois. Perhaps you’ll need to live in a nursing home or an assisted-living facility. Or, after considering your options, you may even decide to stay where you are. When the time comes to evaluate your housing situation, you’ll have numerous options available to you.

There’s no place like home
Are you able to take care of your home by yourself? If your answer is no, that doesn’t necessarily mean it’s time to move. Maybe a family member can help you with chores and shopping. Or perhaps you can hire someone to clean your house, mow your lawn, and help you with personal care. You may want to stay in your home because you have memories of raising your family there. On the other hand, change may be just what you need to get a new perspective on life. To evaluate whether you can continue living in your home or if it’s time for you to move, consider the following questions:

  • How willing are you to let someone else help you?
  • Can you afford to hire help, or will you need to rely on friends, relatives, or volunteers?
  • How far do you live from family and/or friends?
  • How close do you live to public transportation?
  • How easily can you renovate your home to address your physical needs?
  • How easily do you adjust to change?
  • How easily do you make friends?
  • How does your family feel about you moving or about you staying in your own home?
  • How does your spouse feel about moving?

Hey kids, Mom and Dad are moving in!
If you are moving in with your child, will you have adequate privacy? Will you be able to move around in your child’s home easily? If not, you might ask him or her to install devices that will make your life easier, such as tub or shower grab bars and easy-to-open handles on doors.

You’ll also want to consider the emotional consequences of moving in with your child. If you move closer to your child, will you expect him or her to take you shopping or to include you in every social event? Will you feel in the way? Will your child expect you to help with cooking, cleaning, and baby-sitting? Or, will he or she expect you to do little or nothing? How will other members of the family feel? Get these questions out in the open before you consider moving in.

Talk about important financial issues with your child before you agree to move in. This may help avoid conflicts or hurt feelings later. Here are some suggestions to get the conversation flowing:

  • Will he or she expect you to contribute money toward household expenses?
  • Will you feel guilty if you don’t contribute money toward household expenses?
  • Will you feel the need to critique his or her spending habits, or are you afraid that he or she will critique yours?
  • Can your child afford to remodel his or her home to fit your needs?
  • Do you have enough money to support yourself during retirement?
  • How do you feel about your child supporting you financially?

Assisted-living options
Assisted-living facilities typically offer rental rooms or apartments, housekeeping services, meals, social activities, and transportation. The primary focus of an assisted-living facility is social, not medical, but some facilities do provide limited medical care. Assisted-living facilities can be state-licensed or unlicensed, and they primarily serve senior citizens who need more help than those who live in independent living communities.

Before entering an assisted-living facility, you should carefully read the contract and tour the facility. Some facilities are large, caring for over a thousand people. Others are small, caring for fewer than five people. Consider whether the facility meets your needs:

  • Do you have enough privacy?
  • How much personal care is provided?
  • What happens if you get sick?
  • Can you be asked to leave the facility if your physical or mental health deteriorates?
  • Is the facility licensed or unlicensed?
  • Who is in charge of health and safety?

Reading the fine print on the contract may save you a lot of time and money later if any conflict over services or care arises. If you find the terms of the contract confusing, ask a family member for help or consult an attorney. Check the financial strength of the company, especially if you’re making a long-term commitment.

As for the cost, a wide range of care is available at a wide range of prices. For example, continuing care retirement communities are significantly more expensive than other assisted-living options and usually require an entrance fee above $50,000, in addition to a monthly rental fee. Keep in mind that Medicare probably will not cover your expenses at these facilities, unless those expenses are health-care related and the facility is licensed to provide medical care.

Nursing homes
Nursing homes are licensed facilities that offer 24-hour access to medical care. They provide care at three levels: skilled nursing care, intermediate care, and custodial care. Individuals in nursing homes generally cannot live by themselves or without a great deal of assistance.

It is important to note that privacy in a nursing home may be very limited. Although private rooms may be available, rooms more commonly are shared. Depending on the facility selected, a nursing home may be similar to a hospital environment or may have a more residential feel. Some on-site services may include:

  • Physical therapy
  • Occupational therapy
  • Orthopedic rehabilitation
  • Speech therapy
  • Dialysis treatment
  • Respiratory therapy

When you choose a nursing home, pay close attention to the quality of the facility. Visit several facilities in your area, and talk to your family about your needs and wishes regarding nursing home care. In addition, remember that most people don’t remain in a nursing home indefinitely. If your physical or mental condition improves, you may be able to return home or move to a different type of facility. Contact your state department of elder services for guidelines on how to evaluate nursing homes.

Nursing homes are expensive. If you need nursing home care in the future, do you know how you will pay for it? Will you use private savings, or will you rely on Medicaid to pay for your care? If you have time to plan, consider purchasing long-term care insurance to pay for your nursing home care.

At HFG Wealth Management, we embrace a 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 information contain herein is general in nature and may not be suitable for everyone. We encourage you to give us a call, to discuss your specific situation and to help determine the appropriate course of action.”

Health Insurance and Divorce


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How will a divorce affect your health insurance coverage? During marriage, it’s common for one spouse to maintain health coverage for the entire family through his or her group health insurance plan at work. After a divorce, coverage for the other spouse and the children could terminate. State and federal laws offer protection to families in danger of losing health-care coverage, especially to children. But it’s important to re-examine your family’s health insurance situation before a divorce occurs to avoid serious complications afterward.

Health insurance coverage can be included in a divorce settlement
Because health coverage is such an important benefit, some divorce decrees stipulate that a spouse who provided health coverage for the other spouse or family during the marriage must continue to provide such coverage following a divorce. This is especially true if the other spouse didn’t work outside the home and has no immediate access to health insurance. Neither an insurer nor an employer can deny such court-ordered coverage when children are involved.

If you’re the spouse who carries the health coverage, you may have to pay additional premiums to continue coverage for your ex-spouse and your children, depending on the policy provisions. Some group policies will routinely allow you to continue full coverage for your family even after your divorce. Of course, this may change if you later remarry and want to include your new family on your policy. In any case, the premium for a group family plan may be less expensive than single coverage for two adults.

If your family has individual health insurance
If the issue of health insurance is not included in your divorce settlement, you’ll need to do some scrambling around if your ex-spouse is the insured on the family’s individual health insurance policy. It’s very possible that the coverage provided to you and your children could be terminated. Talk to your insurance agent to determine if you’re still covered, and for how long. If you’re still included in the policy, find out how much the premiums will be over the next 6 to 12 months. Also, begin looking into new health insurance for you and your children.

Secure health coverage for your children
Hopefully, you and your former spouse can work out an agreement regarding health coverage for your children. The child support section of the divorce agreement assigns responsibility for providing the children’s health insurance. But if the noncustodial parent or that parent’s insurance company or employer refuses to cooperate, federal law provides for a court order that secures your children’s continued health insurance coverage. This court order, known as a Qualified Medical Child Support Order (QMCSO), stipulates that custodial parents have the right to obtain health insurance coverage for their children through the noncustodial parent’s group health plan, if the noncustodial parent has such coverage. The children can’t be denied access to the plan, although limitations can be placed on the coverage. The order will not require the plan to provide additional benefits not actually offered in the plan.

The QMCSO can require that policy premiums be deducted directly out of the employee’s paycheck. Reimbursements for medical care are made directly to the custodial (nonemployee) parent, when that parent pays a provider. Also, the noncustodial parent can’t choose a medical plan that is unsuitable for the children. If you’re the custodial parent, get copies of your ex-spouse’s medical plan, medical claims and election forms, the summary plan description outlining your former spouse’s employee benefits, and the page designating the current insureds of the health plan.

Temporary coverage through your former spouse’s employer
Temporary protection may be available through the Consolidated Omnibus Budget Reconciliation Act (COBRA). This federal law was designed to protect employees and their dependents at companies with 20 or more workers from losing group insurance coverage as a result of job loss or divorce.

If your former spouse maintained family health coverage through work, you may (at your own expense) continue this group coverage for up to 36 months after the divorce or legal separation. Your cost of continuing COBRA coverage can’t exceed 102 percent of the cost to the plan for providing identical benefits to an active participant. Be aware that you have the right to pay the premiums in monthly installments. Also, you must pay premiums on time or you’ll lose your coverage. COBRA coverage will terminate sooner than 36 months if you remarry or obtain coverage under another group health plan. Certain governmental plans and church-sponsored plans are exempt from the act.

Several states have enacted their own laws that preserve a spouse’s eligibility for health insurance after a separation or divorce. Some of these laws may provide you with rights more generous than those offered under COBRA, so check your state’s laws first. Ask your divorce attorney or contact your state insurance commissioner’s office.

Also, if you’re over a certain age, it may be wise to purchase individual health insurance or to make sure your working former spouse maintains health coverage as part of the divorce settlement. Otherwise, when COBRA coverage terminates after 36 months, you may find that poor health in your later years presents an insurability problem or that the cost of coverage is exorbitant. In addition, the Health Insurance Portability and Accountability Act of 1996 may provide certain protection regarding pre-existing conditions.

At HFG Wealth Management, we embrace a 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 information contain herein is general in nature and may not be suitable for everyone. We encourage you to give us a call, to discuss your specific situation and to help determine the appropriate course of action.”

 

A New Day for 529 Plans


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Federal tax reforms lead to new possibilities for these education savings accounts. 

Do you have a 529 college savings plan? Have you thought about opening a 529 plan account? If the answer to either question is “yes,” you should know about two major changes that broaden the possibilities for 529 plans. They may give your family some new options.

You may be able to pay K-12 tuition with 529 plan funds. The legislation popularly known as the Tax Cuts & Jobs Act authorized this change: under federal law, up to $10,000 of 529 plan assets can be withdrawn for this purpose annually, for each of the named beneficiaries of a 529 plan account. The funds may be used for tuition at both secular and religious schools. (While 529 plan assets can pay for a variety of “qualified” higher education expenses, tuition is considered the only “qualified” expense at the K-12 level.)

Unfortunately, not all states are on board with this change yet. 529 plans are administered at the state level, and at present, less than half the 50 states (and the District of Columbia) treat 529 plan assets in a way that conforms to federal tax law.

Some states – such as Utah – have 529 plans ready for K-12 withdrawals. In other states, such as Alabama, laws are on the books specifically barring 529 plan money from being spent on elementary education expenses. Amendments to these types of laws may be years away. Iowa, Maine, and Nebraska have issued notices telling 529 plan participants to refrain from using their accounts for K-12 expenses – for now.   

Then there is the matter of state tax revenue. More than 30 states and the District of Columbia offer tax credits or deductions for 529 plan contributions, but those tax breaks are linked to the withdrawals being used for higher education. Offering those perks to additional taxpayers will reduce the money flowing into state coffers.

Another issue is the treatment of investment gains in 529 plans. If state law does not sync with federal law, do those gains become taxable at the state level? States need to address this.

Keep in mind that you can save and invest in another state’s 529 plan. If you live in a state where the rules for the 529 plan are inconsistent with the new federal law, you have 49 other possibilities (50 counting the District of Columbia). You might lose out on your home state’s tax deduction for college saving, but you may gain the freedom to withdraw funds for K-12 tuition.

You can also open multiple 529 plan accounts in multiple states. Plans in other states may offer different investment choices and allow higher account balances. 

Additionally, 529 plan assets may now be transferred to 529 ABLE accounts. If you have a child with special needs, you will be delighted to know that federal tax law now allows you to direct up to $10,000 a year from a standard 529 plan to an ABLE account. The transferred amount counts toward the annual ABLE account contribution.

Families have been hoping for this development since the Achieving a Better Life Experience Act was passed in 2014. This option is scheduled to expire after 2025, but Congress may extend it or make it permanent before the expiration.

At HFG Wealth Management, we embrace a 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 information contain herein is general in nature and may not be suitable for everyone. We encourage you to give us a call, to discuss your specific situation and to help determine the appropriate course of action.”

 

The Importance of Equitable Estate Planning

February 23, 2018
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Have you considered the factors that may promote inequality in wealth transfer?  

Suzanne is widowed and has four adult children. Her investment portfolio is worth $1 million, and she owns a bed-and-breakfast inn worth $1 million as well. Can she conveniently and equally bequeath these assets to her kids to give each child a $500,000 share of her wealth?

This may not be as easy as it seems. “Suzanne” and her estate planning dilemma are hypothetical; the above scenario genuinely illustrates why “equal” estate planning is not necessarily equitable.

Some estates are hard to divide fairly. This problem often surfaces when successful individuals or families have much of their net worth in illiquid assets, such as investment properties, collectibles, or private company interests. An illiquid asset can be hard to sell, and its price may need to be reduced to make a sale or exchange work. Once sold, the illiquid asset may not represent an “equal” share of the estate, only a devalued one.

Moreover, the illiquid asset may be unwanted by the heir. An heir may have little desire to become a landlord or maintain a classic car collection.

Life insurance can address this problem. In the above scenario, the purchase of a $2 million life insurance policy may be a very wise move. This will boost the value of the estate to $4 million and permit “Suzanne” to bequeath $1 million in assets to each of her kids. The ownership of the $1 million bed-and-breakfast inn no longer needs to be divided. That $1 million share of the estate can be left to the heir with the most interest in real estate investment.

The division of assets is still imperfect. The $1 million investment portfolio and the $1 million inn may increase in value. The $2 million in life insurance proceeds, while tax free, may or may not end up being invested by the other two heirs after the 50/50 split. Still, the initial distribution of wealth is more equitable, and more manageable, than it would be otherwise.

Buy-sell agreements can address major issues for business owners who want to hand their firms down to the next generation. A well-crafted buy-sell agreement can delineate the heir(s) in control of a company’s ownership and their degree of control. It can also clearly state when and how shareholders can transfer their shares in the business to others.

In pursuit of equitable estate planning, some families choose the blended approach. This method promises greater rewards for heirs who have made greater contributions to family wealth. It aims to distribute family assets equally, fairly, and equitably.

When the blended approach is used, the bulk of family wealth is divided equally among heirs in cash. Some assets are distributed fairly – select liquid or illiquid assets are handed down to this or that heir to suit individual priorities, needs, or wants. Then, a defined percentage of the estate is distributed equitably, based on involvement in the family business or similar criteria.

Whether you have done much or little estate planning, the matter of equitable division of assets must be considered. In terms of asset transfer, what seems equal at first consideration may not prove equal in execution.

At HFG Wealth Management, we embrace a 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 information contain herein is general in nature and may not be suitable for everyone. We encourage you to give us a call, to discuss your specific situation and to help determine the appropriate course of action.”

 

7 Ways To Know If You Need An Estate Plan


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Some people say they are not able to bring themselves to prepare when it comes to estate planning, or think estate planning doesn’t apply to them. Creating an estate plan allows for you to determine how your estate will be distributed if something were to happen to you, rather than allowing the laws in your state to determine the distribution.  Not having a proper will or estate plan is an invitation for confusion and can invite turmoil down the road if your wishes are not followed.

Simply stated, estate planning is creating a plan to determine how to distribute your property during your life and at your death. It is the process of developing and implementing a master plan that facilitates the distribution of your property after your death and according to your goals and objectives. Preparing a solid estate plan can ensure financial stability and peace of mind for a surviving spouse, preserve assets for children and grandchildren, minimize taxes and expenses and ensure your wishes are carried out.

You may need to plan your estate, especially if any of the following apply:

  1. You have children who are minors or who have special needs
  2. Your spouse is uncomfortable with or incapable of handling financial matters
  3. You’re a business owner
  4. You have property in more than one state
  5. You intend to contribute to charity
  6. You have strong feelings about health-care decisions
  7. You have privacy concerns or want to avoid probate

Proper estate planning may help to make sure that your loved ones are provided for or additionally, avoiding probate or reducing taxes. Estate planning can be as simple as implementing a will (the foundation of any estate plan) and purchasing life insurance or as complicated as executing trusts and exploring other sophisticated tax and estate planning techniques. Estate planning is extremely important if you are wealthy or have a smaller estate. In fact, estate planning is more important if you have a smaller estate because final expenses will have a greater impact on your overall estate and financial picture. Misusing even a single asset may cause your loved ones to suffer from lack of financial resources.

At HFG Wealth Management, we embrace a 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 information contain herein is general in nature and may not be suitable for everyone. We encourage you to give us a call, to discuss your specific situation and to help determine the appropriate course of action.”

 

Planning for Future Health Care Costs

February 13, 2018
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The usual method for estimating spending needs in retirement is to take your post-retirement household budget and tack on an inflation rate, such as 3%. Some expenses may increase at a faster rate than the inflation rate you use, others at a slower rate, but overall, expenses such as housing, utilities, food, and so on, should rise with the general rate of inflation.   Not so for health care expenses. Projecting future health care costs in retirement can be tricky because there are several factors influencing the amount you will pay for health care in the future.

Your individual health care experience
General health care expenditures notwithstanding, you and your spouse will have your own individual health care experience during retirement. As the years go by, the odds of contracting a serious illness or chronic condition increase. Even with supplemental insurance, you could be forced to allocate a higher portion of your budget to out-of-pocket expenses such as copayments on drugs and doctor visits. You may not know exactly how much you’ll have to pay for health care when you’re 75 or 80 or 85, but you can be pretty sure it will be more than you are paying now.

Longevity
The mere possibility of a long life results in higher-than-average health care expenditures. Even if you are lucky enough to stay healthy all your life and pass away peacefully of natural causes at age 100 or 105, you still will have paid 35 or 40 years’ worth of premiums. Adding these up for Medicare, Part D and Medigap premiums and rising by 5% per year, a 65-year-old who lives another 35 years would end up paying quite a bit in premiums alone — even if he or she never enters a doctor’s office. With longer life expectancy comes a greater likelihood of the need for long-term care. Even in the absence of illness, the frailties of aging inhibit elders’ ability to care for themselves.

Potential loss of retiree health benefits
As health care costs continue to rise, employers are responding by reducing or eliminating retiree health coverage for new hires and requiring current retirees to pay more for the coverage they have. If you are counting on generous retiree coverage from your former employer, you may want to consider the possibility that such coverage may be reduced or eliminated in the future, requiring you to go into the open market to purchase supplemental insurance.

How much will you need?
The amount will depend on, among other factors:

  • The age at which he or she retires
  • Length of life after retirement
  • The availability of health insurance coverage after retirement to supplement Medicare and the source of that coverage
  • Health status and out-of-pocket expenses
  • The rate at which health care costs will increase
  • Interest rates and other rates of return on investments

The healthiest of us may need to save the most for health care. This may seem paradoxical, but think about what many people in their eighties or nineties experience: years of declining health and mobility, and accompanying high health care expenses.

At HFG Wealth Management, we embrace a 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 information contain herein is general in nature and may not be suitable for everyone. We encourage you to give us a call, to discuss your specific situation and to help determine the appropriate course of action.”

 

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Copyright © 2018. HFG Wealth Management, LLC. Investment advisory services offered through HFG Wealth Management, LLC – An independent Registered Investment Advisory firm registered with the SEC. Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Therefore, any information presented here should only be relied upon when coordinated with individual professional advice. [ more disclosures ]