Tag Archives: Tax planning

FPC: Do You Have A “Financial Vulnerability” Cushion?

REGISTER NOW for our most popular workshop:


  • The Westin Austin at the Domain- 11301 Domain Drive, Austin, TX 78758
  • February 8th from 9-11am.

Everyone has heard of having emergency funds, but how many have heard of a financial vulnerability cushion (FVC)? Common, old rule of thumb financial rules typically dictate savings rates, but in times like we currently face should we be doing something different?

I know, I know times are great. Markets are hitting all-time highs daily, unemployment is better than anything we have seen in 50 years, tax brackets are low, and the list goes on and on. These are just a few of the more common themes and I’m not here to argue any of them.

I am here to hopefully provide an ounce of clarity.

What happens after some of the best times? What happens when life can’t get you down? What happens after some of the worst times? Markets eb and flow and not just financial markets, but job markets as well.

They don’t say when it rains it pours for nothing.

We want you to be prepared.

I’m not talking about building a bunker, but I am talking about going above and beyond the typical 3-6 months of expenses held in a fully funded emergency fund.  In times like these it’s difficult to think about putting funds anywhere but in the market. After all, the market has been red hot. I visit with people daily who question their need for additional savings or any money in savings accounts while the market’s notching all-time highs weekly. FOMO or “Fear of missing out” is very real.

Have you ever wondered why Wall Street tells everyone that buy and hold is the only strategy, yet they don’t utilize it themselves?

Have you ever wondered how so many people end up in difficult financial positions? Many times, it’s because they choose the present over the future in terms of spending or believe the future will improve and things will only get better. I’ll get that raise or bonus this year, but unfortunately as many know sometimes things are as good as they get.  Don’t get me wrong I’m an eternal optimist, but when it comes to things I literally have no control over I know a little better.

We’d like for you to start thinking a little differently when it comes to where to put your funds and how much you should have saved that are easily accessible and low risk.

Emergency Funds

These funds should be in a savings account and accessible, but not so accessible you can go to the ATM and make a withdrawal. Emergency funds are for real emergencies, your A/C goes out, the car breaks down, your kid breaks their leg, the list goes on. (I’ve actually encountered all within the last 12 months) so don’t say it can’t happen!

We like online banks that are still FDIC insured or a brick and mortar that pays a higher interest rate. Don’t leave these funds in a bank that pays you very little or next to nothing. The banks are using your funds to make money, so should you. Every little bit helps.

A resource to find a credible bank could be www.bankrate.com or www.nerdwallet.com. Just type in High Yield Savings. Recently there have been many more banks popping up in the search que so do your research on each institution or give us a call if you have any questions.

Financial Vulnerability Cushion or (FVC)-

These are funds that you can think of a little differently, what if I lose my job/have a disability/illness AND the A/C goes out and the car breaks down.  Instead of putting funds in your savings account go ahead and structure these a bit different.

It’s ok to ladder CD’s to lock in higher or current rates. If using CD’s, you would ladder these in the event rates rise so a portion is always coming due. Example 3 months, 6 months, 9 months, 12 months. This may be difficult to stomach because these rates will be similar to what you will earn in a high yield savings account but will also provide a better rate should rates decrease. Short term bond funds or ETF’s could also be suitable for these funds. Safety and liquidity are key here.  We currently favor short term, high credit quality bonds or Treasury bond ETF’s. Remember, you’re not putting these funds here forever and these should be monitored like any other investment. While these are safer investment’s they are not cash and carry some risk and loss of principal.

While the main purpose of the Financial Vulnerability Cushion is to fortify your financial house, these funds can also be utilized for opportunities as well.

How many times have you thought to yourself if only I had the funds to invest or if you only did something differently? Well, congratulations you can now be one of the few investors with additional cash to buy low. This especially makes sense since Wall Street wants you to ride it out and you can’t time the markets, but they sure can. Wall Street will also tell you that cash is a terrible investment. Ever wonder why? How does Wall Street get paid on cash? Long term cash can be a terrible investment, but as our Director of Financial Planning Richard Rosso says you can fall on one of two swords in regards to having cash:

  1. The inflation sword or
  2. The loss of principal sword.

Our thoughts are this isn’t a forever holding. While I do think this strategy could be used indefinitely for all of the reasons above. This is a strategic investment to be used in late stage cycles. This is your chance to pounce when the market is on sale or that business opportunity falls in your lap. After all true financial freedom is earned not given in markets and often times it is taken away just as quickly.

Bet On Yourself.

Bet on yourself to make the right decision, to be prudent, to be wise. When everyone and I mean everyone is doing one thing does it make sense to be a bit of a contrarian, protect assets and give yourself an opportunity in the future?

This is a great time to review your financial plan and take a look at your assets. Where are you making your contributions? What impact will that make when you make withdrawals? What will give you the most opportunity for success. Most success isn’t given overnight and neither are investment returns.

No one knows what tomorrow brings, but we do know as Roman philosopher Seneca once said “Luck is what happens when preparation meets opportunity.”

Call your advisor, and ask them about your Financial Vulnerability Cushion.

Do you have one?

FPC: All The Numbers You Need To Know For 2020

REGISTER NOW for our most popular workshop:


  • The Westin Austin at the Domain- 11301 Domain Drive, Austin, TX 78758
  • February 8th from 9-11am.

Hopefully you’ve had some time to reflect and grade yourself on your financial progress for 2019 and you’re ready to take 2020 by the horns. The new year brings new numbers to be aware of to ensure you’re taking advantage of all you can. There are many contribution limits, income limits and a vast array of numbers used in financial planning, but here are a few more common ones to make sure you’re staying on track.

Retirement Plans:

For employees:

401(k), 403(b), most 457 plans and the federal governments Thrift Savings Plan employee contributions have increased from $19,000 to $19,500. The maximum amount employees + employers can contribute has also gone up to $57,000.

For those of you over 50 the catch up provision has increased from $6,000 to $6,500.

Please, please don’t overlook the Roth option if you have it within your plan.

For Small Business Owners:

SIMPLE IRA plan contribution limits have been increased from $13,000 to $13,500. There is also a catch up provision of $3,000 for individuals over 50.

SEP IRA contribution limits have also increased from $56,000 to $57,000 or 25% of income whichever is lower.


While the maximum contribution limits for IRA’s of $6,000 and a catch up provision of $1,000 for those over 50 remained unchanged. The income limits for deductibility in the case of the Traditional IRA and the ability to contribute to a Roth IRA did change a bit.

Traditional IRA

You can always make a contribution to a Traditional IRA with no income limitations, but your contribution may not be deductible for income tax purposes. For those of you who would like to make a tax deductible contribution which I assume is most of you, the numbers have changed slightly. There is such a thing as a “phase out limit”. This applies if you make over a certain amount of income you can still contribute and deduct, but the amount will be reduced that you can deduct.

Then there are those who can’t make tax deductible contributions at all.

If you and your spouse are not covered by an employer sponsored plan then regardless of income you can make a deductible contribution.

If you are covered by an employer sponsored plan here is what you need to know about those phase out limits. If you’re single or Head of Household the income limit starts at $65,000 and ends at $75,000. Meaning that if you make between $65,000 and $75,000 your deductible contribution will be reduced, but if you make over $75,000 you can’t deduct your contribution for income tax purposes. If you file Married Filing Jointly that number is $104,000 to $124,000.

Now if only one of you is covered by an employer sponsored plan the income limit for tax deductible contributions goes up to $196,000-206,000.

Roth IRA

Roth IRA’s are a little trickier than their older brethren the Traditional IRA. You can either contribute or you can’t. In the case of the Roth the benefit isn’t a tax deduction, but paying taxes now, funding the Roth with after tax funds and enjoying tax free growth and distributions should you meet a couple of small stipulations.  Roth contributions can be withdrawn at any time without a 10% penalty, but the earnings could be subject to taxes and the 10% early withdrawal penalty if you don’t meet the following:

  • Withdrawals must be taken after 59 ½
  • Withdrawals must be taken after a five year holding period

There are also a few qualifying events that may preclude you from having to pay taxes and/or 10% penalty, but we’ll save those for another post.

Here are the numbers you need to know to determine if you can or can’t contribute to a Roth IRA.

If you’re single or Head of Household and make under $124,000 you can make a full Roth contribution of $6,000 if you’re over 50 you can also make the additional $1,000 catch up contribution. If you make over $124,000, but less than $139,000 then you will be able to make a partial contribution. Over $139,000 you’re out of luck on a Roth IRA.

Married Filing Jointly income numbers for eligibility to contribute to a Roth increase a bit as well increasing from $193,000-$203,000 to $196,000- $206,000.

Saving for Health Care

There are two main types of accounts designed to help pay for medical expenses. If you can utilize them both that’s great, most don’t have that choice, but if you have to choose I really like the Health Savings Account.

Health Savings Accounts (HSA)

If you have access to a Health Savings Account max it out and if you can pay medical expenses out of pocket don’t use these funds.

This is the only account in the world which will give you a triple tax benefit-funds go in pre-tax, grow tax free and come out tax free if used for qualified medical expenses. Fidelity did a study last year that estimated the average 65 year old couple will spend $280,000 in health care expenses. You must be in a high deductible health insurance plan to utilize a HSA, but we are seeing more and more employers offering these types of plans.

This year if you are single you can contribute $3,550 and families can contribute $7,100 to an HSA. There is also an additional catch up provision of $1,000 for those 55 and older.

Flexible Spending Accounts (FSA)

FSA’s which are typically use it or lose it now have an annual contribution limit of $2,750 up from $2,700 in 2019.

Social Security and Medicare

We spend a lot of time discussing Social Security and Medicare and for good reason. According to our workshop attendance in 2019 there is a thirst for knowledge in these areas. I understand, they both can be confusing and this is an area that contains “stealth taxes.”

Social Security

Social Security had a couple of increases in 2020, for instance the estimated maximum monthly benefit if turning full retirement age (66) in 2020 is now $3,011.

OASDI which is an acronym for Old-Age, Survivors, Disability Insurance (Social Security Trust) taxes income up to $137,700 this is an increase from $132,900 in 2019. The current tax is 6.20% on earnings up to the applicable taxable maximum amount of $137,000. The Medicare portion is 1.45% on all earnings.

The retirement earnings test exempt amounts have also increased. In layman’s terms, if you take social security prior to full retirement age you will have $1 in benefits withheld for every $2 over $18,240/yr.

The year an individual reaches full retirement age that number increases to $48,600/yr, but only applies to earning for months prior to attaining full retirement age. In this instance $1 in benefits will be withheld for every $3 in earning above the limit.


Medicare Part B premiums have also increased from $135.50 to $144.60. The first threshold for premium increases or surcharges has also increased for single filers to $87,000 to $109,000 and $174,000 up to $218,000 for joint filers. If you’re above those first numbers your monthly premium goes up to $202. 40 and it only goes up incrementally from there.

These are some of the more common numbers we watch for to either try to keep more money in your pocket or make sure you’re maximizing all funding sources. Now is a great time to check to ensure you’ve updated any systematic contributions to reflect the new numbers. After all, I know you’re paying yourselves first.

Financial Planning Corner: A Change To RMD’s For Post-49’ers

Happy New Year from RIA Advisors Planning Corner! As we wind down the holiday season our focus begins to shift back toward wealth and health.

This financial industry and retirees have been trying to figure out what the passage of the SECURE ACT means to them. We’ve spent some time on this over the last couple of weeks, but we keep getting one really important question from readers over the holidays.

When do I have to take my Required Minimum Distribution aka RMD from my tax deferred retirement account?

We’ll break this down for you by date of birth.

You were born before 1949…

Business as usual if you are already taking RMD’s. The SECURE ACT does not impact you. Continue to take your RMD’s as scheduled.

If you were born between January 1st and June 30, 1949…

Again, business as usual. Since you turned 70 ½ in 2019 hopefully you have already taken your RMD. However, if you didn’t make your distribution in 2019 you’re in luck. You can still take your 2019 distribution as long as you do so prior to April 1, 2020. Remember you will still be on the hook for your 2020 RMD as well as last year’s 2019.

You were born between July 1st and December 31st, 1949…

Winner, winner chicken dinner! The SECURE ACT does affect you. Your first RMD is now 72 instead of 70 ½.

You were born after 1949…

Ding, ding, ding you won the SECURE ACT. Your first RMD doesn’t happen until you’re 72.

RMD’s aren’t to be taken lightly. If you neglect to make your distributions Uncle Sam will penalize you to the tune of 50% of the amount not withdrawn.

I’m sure in the coming weeks we’ll continue to discuss the implications of the SECURE ACT as we receive more questions.  The bill certainly accelerates the need for funds outside of Traditional IRA’s and retirement accounts since the Stretch IRA is all but dead. For more information on the SECURE ACT go to www.realinvestmentadvice.com and type in SECURE ACT in the search bar for previously written articles.

Financial Planning Corner: What You Need To Know About The SECURE Act

All you need to know about the SECURE ACT, a Required Minimum Distribution reminder and last minute financially savvy gift ideas

The week before Christmas has been just a little busier than usual. Even with all of the additional political hubbub, it looks like politicians did have time to get one thing done: The SECURE ACT.

The SECURE ACT has finally been sent to President Trump’s desk to be signed. This bill does accomplish several good things for small businesses and the average worker, but it does eliminate one key element for IRA beneficiaries which is the ability to stretch IRA funds generationally. Currently, non-spouse beneficiaries have the ability to stretch distributions from an inherited IRA over their life span. Unfortunately, with the passing of SECURE ACT this is no longer the case. Now, non-spousal inherited IRA funds must be distributed within a 10-year time frame. Who’s the winner here? It’s clearly Uncle Sam as they find more ways to get their hands on your hard-earned dollars. This is just another reason to explore Roth conversions and to take a hard look at where you park your funds. I fear having the flexibility of where to take distributions from will become all the more valuable in the coming years.

Read more on the Secure Act from our Director of Financial Planning, Richard Rosso CFP®.

RMD Reminder

If you’re 70.5 or older you have five market days before the New Year, be sure to take out your Required Minimum Distribution before year end. If you don’t, I’m sure Uncle Sam won’t mind collecting that 50% excise tax on the amount not distributed.


End of Year Gift Ideas…

Ever wonder what to give the kid that has it all? It seems like these days kids have more and more access to technology that we could have only dreamed of. Heck, my 3-year-old can work an iPad as well or better than I can and he doesn’t even own one. If this is you this holiday season, don’t fret. Here are a couple ideas that may not produce any big smiles from the little ones, but will help give your loved ones a leg up in life.

Roth IRA

Do you have a child or grandchild that has worked this year? No, we aren’t talking about those with babysitting or lawn jobs that never get taxed. The IRS defines earned income as “all the taxable income and wages you get from working… for someone who pays you or in a business you own.” Key word taxable.

You can contribute to a Roth or Traditional IRA depending on income limits, but considering they’re children let’s assume they fall under the income limits. With these assumptions, I would go with the Roth. Having the ability to put funds aside at a young age in an account that will grow tax free without income taxes taken out in retirement is a no brainer.

The max you can put aside for 2019 for your worker is up to their earned income or $6,000… whichever is less.

529 Plans

529 plans are an excellent way to put funds aside for college without the child getting control of the assets at the age of 18. A 529 plans biggest benefit is its tax-free growth if the funds are used for higher education.

Annual contributions to a 529 plan for 2019 can be up to $15,000 per year or a lump sum contribution of $75,000 for a 5 year period. Be careful not to trigger gift tax consequences. 529 plans are issued for each state, if you live in a state with state income tax check to see if your state plan offers tax benefits for your contributions. If you live in a state without state income tax pick the plan that’s most appropriate for you.

These gifts may seem boring and fall on deaf ears for the time being, but I can assure you as your kids or grandkids age they will be more valuable and meaningful than any toy or trinket they could receive.

One Last Suggestion

One last gift suggestion is one of your time. Time with family, time volunteering, time helping others. We often think that gifts have to be of monetary value and overlook one of the most fleeting and sought-after things, time. If you’re on your death bed would your thoughts be of one more zero in your bank account or of time? In this world, or even our role as advisors, I believe it’s ever more important to help keep things in perspective. I hope you enjoy TIME with loved ones, recharge and prepare to conquer 2020.

However, if you don’t have the time I’m sure there are many charitable organizations who need and would love a monetary donation. Plus, you may reap the benefit of a nice write-off if you can itemize your taxes. Sorry, I couldn’t help myself with one more money saving tip.

With any monetary gift consult with your financial advisor and CPA to ensure you’re staying within the lines and utilizing the right vehicle for the purposes intended for they all have their pro’s and con’s. The information above is intended to provide basic insight into a couple of often overlooked strategies.

We hope you have a Merry Christmas and a happy, prosperous, healthy New Year.

In 2020, we look forward to keeping you up to speed on financial planning topics, new rules and regulations and most of all things that help enrich or better your life.