Tag: Wealth Management

How CapSouth Advisors are Responding to the Bear Market & Recent Legislation

April 14, 2020
Guidance, Wealth Management, Wisdom

How CapSouth Advisors are Responding to the Bear Market & Recent Legislation – April 13, 2020

You can tell a lot about your broker or advisor from the actions they take (or don’t take) in market disruptions. The current period, with steep market declines, extreme volatility, pandemic fear, and emergency legislation packages certainly qualifies as a market disruption. We believe good advisors and brokers excel in communicating with clients regarding the markets, financial plans, and legislative effects in such periods.

The current period offers many topics, and even opportunities, that should be discussed. These include:

Basic Communication

Touching base with clients to determine their mindset. Is the current environment causing fear or is it looked upon as an opportunity to purchase assets at a reduced price? Each client will have a unique perspective, and it is important for your advisor or broker to understand your view. Any appropriate action will vary based on your circumstances and perspective.

2. Focus on Goals

It is extremely important that any action be consistent with long term goals and an established financial plan. Often emotional and hasty decisions made in times of market turmoil are harmful to the ability to achieve a long-term plan.

3. Put Cash to Work or Increase Risk

If you see investment opportunity when markets fall, this is a great opportunity to discuss investing extra cash or increasing risk in accounts.

4. Roth IRA Contributions and Conversions

Consider making 2020 contributions and conversions while markets are lower.

5. Tax Considerations of the Market Decline

If you have investments with a low cost basis that you have held to avoid taking the gains, these positions will likely have lower gains or no gains at this point. This may be a good time to discuss reducing or getting out of such positions.

Gains on investments made in non-retirement accounts will be subject to long-term capital gains rates if held for twelve months or longer

For some clients a partial or full conversion from a traditional IRA to a Roth IRA should be considered. Funds in a traditional IRA have not been taxed. By converting, taxes will likely be owed. Because balances in most traditional IRAs are presently lower, the associated taxes owed may also be lower. As an added bonus, if the markets bounce back in the next couple years, the growth on any converted money will occur in the Roth IRA and should not be taxable in the future.

6. Periodic Withdrawals

If you have consistent withdrawals, monthly or quarterly for example, from investment accounts, you may want to discuss funding the withdrawals from any cash or fixed income investments that are available. This will keep you from selling equities at a reduced price.Legislative Updates

7. Legislative Updates

Filing deadline – For most people, 2020 tax filings are not due until July 15^th (instead of the normal deadline of April 15^th).

Federal quarterly estimated tax for April 15^th has been extended to July 15^th; second quarter estimated tax payment has also been extended to July 15^th.

Required Minimum Distribution (RMD) – If you are normally required to take an RMD from any type of IRA or from your workplace retirement plan, you will not have to do so in 2020.

IRA Withdrawals and 401k Loans – the CARES Act relaxes some of the rules regarding these items. Your advisor or broker should be able to discuss this in more detail should you have a need.

Charitable Contributions – for 2020 there is no limit on the amount of a cash gift you can donate to a charity and subsequently receive an offsetting deduction, in the amount of the gift, from your income. If you’ve ever considered a large gift to a charity, you should discuss with your advisor if 2020 is the appropriate year. This change does not apply to donations to donor advised funds.

CapSouth advisors are prepared to discuss all these topics with clients and prospects, and they have been actively doing so over the last few weeks. If your current advisor or broker is not discussing them with you or you have no current advisor, we would welcome the opportunity to speak with you and to potentially begin a new relationship.

To speak to a CapSouth advisor about these topics, contact our office at 800.929.1001 or visit our website at www.capsouthwm.com

Investment advisory services offered through CapSouth Partners, Inc., an independent Registered Investment Advisor, dba CapSouth Wealth Management. CapSouth Partners does not provide tax or legal advice. Please consult your tax or legal advisor prior to making decisions which may have tax or legal consequences. Information contained herein is believed to be reliable but is not guaranteed as such by CapSouth. Nothing contained herein should be construed as individual investment advice; all commentary is of a general nature. This commentary contains opinions; any opinions presented should not be construed as fact and are not in any way a guarantee of future events, returns, or outcomes.

Provisions in the 2020 Stimulus Plan that Affect your Retirement Accounts and Income Taxation

April 6, 2020
Retirement, Retirement Planning, Taxes, Wisdom

by: P. Lewis Robinson, CPA

Retirement Accounts Required Minimum Distributions (RMDs):

For the calendar year 2020, no one will have to take a required minimum distribution from any individual retirement accounts or workplace retirement savings plans, like a 401(k). That way, you aren’t forced to sell investments that may have fallen in value, which would lock in losses. If you don’t need the money now, you can let the funds remain invested in expectation that they will recover.
If you took your 2019 or 2020 RMD within the last 60 days, you are also in luck. You can roll over your distribution to the same or a different IRA within 60 days of the prior distribution and not pay the income tax on the withdrawal (as long as you have not made an IRA Rollover within the 365 days preceding your distribution).
Normally, RMDs cannot be converted to Roth IRAs, but now since there are no RMDs, you can withdraw IRA funds at low values and low tax rates and convert them to your Roth IRA. Yes, you pay taxes on the conversion, just like you would have on your RMD. Now, under this 2020 RMD waiver period, you can get more for the tax you pay by being able to convert the funds you withdraw to your Roth IRA at a relatively low tax cost.

Provisions to withdraw funds without paying a 10% penalty:

You can withdraw up to $100,000 from your retirement accounts this year without the usual 10 percent penalty for being under age 59 ½, if the need for the funds is a result of COVID-19.
You will also be able to spread out any resulting income taxes that you owe over three years from the date you took the distribution. And if you desire, you could put the money back into the account before those three years are up, even though the rules may normally keep you from making that large of a contribution.

Borrowing from 401(k):

You can take out twice the usual amount. For 180 days after the passing of the bill, with certification that you’ve been affected by the pandemic, you’ll be able to take out a loan of up to $100,000. The normal rule limiting the withdrawal to half of your balance has been suspended.

Charitable Contributions A deduction for charities even if you don’t itemize:

$300 per year without having to itemize deductions
To qualify, you must give cash to a qualified charity and not to a donor-advised fund. You may be aware of donor-advised funds, as we often recommend these charitable accounts to batch contributions in a particular year in order to maximize deductions and to accomplish other objectives. If you’ve already given money since Jan. 1, that contribution counts toward the $300 cap.

Limits on annual contributions have been lifted:

As part of the bill, donors can deduct 100 percent of their gift against their 2020 adjusted gross income.
If you have $200,000 of income, you can give $200,000 to a public charity and deduct the full amount in 2020.
The new deduction is only for cash gifts that go to a public charity. If you give cash to, say, your private foundation, the old deduction rules apply. And while the organizations that manage donor-advised funds are public charities, you do not get the higher deduction for donating cash to your donor-advised fund.

If you have any questions about how these changes might impact your financial plan, please contact your local CapSouth office or 800.929.1001.

To learn more about CapSouth Wealth Management, please visit our website at www.CapSouthWM.com

CapSouth Partners, Inc., dba CapSouth Wealth Management, is an independent registered Investment Advisory firm. CapSouth does not offer tax, accounting, or legal advice. Consult your tax or legal advisors for all issues that may have tax or legal consequences. Information provided by sources deemed to be reliable. CapSouth does not guarantee the accuracy or completeness of the information.

Coping with College Loans

March 27, 2020
Budgeting, Financial Planning, Guidance, Wisdom

Total student loan debt in America is now around $1.6 trillion. Since 2008, it has more than doubled. Federal Reserve data states that 44.7 million Americans are dealing with lingering education loans. The average indebted college graduate leaves campus owing nearly $30,000, and the mean monthly student loan payment is about $400.[i]

Student debt influences home buying and retirement saving decisions. The National Association of Realtors says that 25% of recent homebuyers have outstanding student loans, including 41% of first-time buyers. A 2018 study by the Center for Retirement Research at Boston College concluded that under-30 employees carrying education debt typically have just half as much saved in their workplace retirement plan accounts as other workers their age.[ii]^,[iii]

If you carry a sizable education debt, how can you plan to pay it off? If you are young (or not so young), budgeting is key. Even if you get a second job, a promotion, or an inheritance, you won’t be able to erase any debt if your expenses consistently exceed your income. Smartphone apps and other online budget tools can help you live within your budget day to day or even at the point of purchase for goods and services.

After that first step, you can use a few different strategies to whittle away at college loans.

*The local economy permitting, a couple can live on one salary and use the wages of the other earner to pay off the loan balance(s).

*You could use your tax refund to attack the debt.

*You can hold off on a major purchase or two.

*You can sell something of significant value – a car or truck, a motorbike, jewelry, collectibles – and use the cash for paying down the debt.

Now, in the big picture of your budget, you could try the “snowball method” where you focus on paying off your smallest debt first, then the next smallest, etc., on to the largest. Or, you could try the “debt ladder” tactic, where you attack the debt(s) with the highest interest rate(s) to start. That may permit you to gradually devote more and more money toward the goal of wiping out that existing student loan balance.

Even just paying more than the minimum each month on your loan has the potential to help. Making payments every two weeks rather than every month can also have a positive impact.

If a lender presents you with a choice of repayment plans, weigh the one you currently use against the others; the others might be better. Signing up for automatic payments can help too. You avoid the risk of penalty for late payment, and student loan issuers commonly reward the move by lowering the interest rate on a loan by a quarter point.[iv]

What if you have multiple outstanding college loans? If one of them has a variable interest rate, try addressing that one first. Why? The interest rate on it may rise with time.

Another option is combining multiple federal student loan balances into one. While this requires a consolidation fee, it also leaves you with one payment, perhaps at a lower interest rate than some of the old loans had. If you have multiple private-sector loans, refinancing is an option. Refinancing could lower the interest rate and trim the monthly payment. The downside is that you may end up with variable interest rates.[v]

Maybe your boss could help you pay down the loan. Some companies are doing just that for their workers, simply to be competitive today. According to the Society for Human Resource Management, 8% of employers offer this perk. A 2018 Employee Benefit Research Institute poll of 250 firms revealed that 13% planned to offer such assistance in the future.[vi]

To reduce your student debt, live within your means and use your financial creativity. It may disappear faster than you think.

To speak to a CapSouth advisor about student loan debt, contact our office at 800.929.1001 or visit our website: www.capsouthwm.com

Investment advisory services are offered through CapSouth Partners, Inc., dba CapSouth Wealth Management, an independent registered Investment Advisory firm. Information provided by sources deemed to be reliable. CapSouth does not guarantee the accuracy or completeness of the information. This material has been prepared for planning purposes only and is not intended as specific tax or legal advice. Tax and legal laws are often complex and frequently change. Please consult your tax or legal advisor to discuss your specific situation before making any decisions that may have tax or legal consequences.

This article contains external links to third party content (content hosted on sites unaffiliated with CapSouth Partners). The policies and procedures governing these third-party sites may differ from those effective on the CapSouth company website, as outlined in these Disclaimers. As such, CapSouth makes no representations whatsoever regarding any third-party content/sites that may be accessible directly or indirectly from the CapSouth website. Linking to these third-party sites in no way implies an endorsement or affiliation of any kind between CapSouth and any third party, including legal authorization to use any trademark, trade name, logo, or copyrighted materials belonging to either entity.

[i] https://www.fool.com/the-ascent/research/student-loan-debt-statistics/

[ii] https://www.nar.realtor/student-loan-debt

[iii] https://www.washingtonpost.com/business/2019/06/25/heres-what-trillion-student-loan-debt-is-doing-us-economy/

[iv] https://www.nerdwallet.com/article/loans/student-loans/how-to-lower-student-loan-interest-rate

[v] https://www.nerdwallet.com/blog/loans/student-loans/consolidate-student-loans-2/

[vi] https://www.wsj.com/articles/employers-try-a-new-perk-matching-student-loan-payments-with-401-k-contributions-11570708801