It’s tax season, and like last year, you received a corrected 1099 in the mail from your account’s custodian, such as Charles Schwab. If you already filed your taxes and are just receiving the corrected 1099 online or by mail, there’s no need to panic.
Revised 1099s are commonplace, and in the majority of cases, the custodian isn’t causing the revisions or holding up the process. Custodians are, however, required to issue a corrected 1099—no matter how insignificant the changes are—so they can give account owners the most accurate, up-to-date information for filing their taxes before the April 15 tax deadline.
To produce a 1099, custodians receive and aggregate all available information relating to distributions made from investments in an account during the previous calendar year. This information includes the character of distributions, such as dividends, qualified dividends, interest, capital gains or return of principal. One such investment is a mutual fund, which is often composed of 100s if not 1000s of securities. A diversified portfolio is often made up of 10 or more mutual funds, and if just one of these securities within a mutual fund issues a correction, the 1099 may need to be revised.
If you received a revised/corrected 1099 and already filed your taxes, you may not have to do anything. The revisions might not be meaningful enough to require filing an amended return. The 1099-DIV, related to the characterization of dividends, is the most commonly revised 1099 form. If the revisions end up being significant enough to impact your tax return, then you can always file an amended return with the correct information. If this leads to a refund, then you have three years from your original filing date to file an amended return to receive the refund. If the revision leads to owing more taxes, filing an amended return as soon as possible will save you on interest and penalties.
Waiting until closer to the April 15 deadline to file your taxes reduces the risk of receiving a corrected 1099 and having to file an amended return reflecting the changes.
Stretch IRAs are useful tools for the individual who wants to extend the life of their retirement accounts through multiple generations. Although there is often confusion surrounding stretch IRAs and how they work, the concept is straightforward. A stretch IRA is a strategy, not a product, used to “stretch” the life of Roth IRA and Traditional IRA assets by designating beneficiaries with the longest life expectancy, such as grandchildren or even great grandchildren. By selecting beneficiaries two to three generations younger than the account owner, as opposed to designating children, the IRS will have lower imposed required minimum distributions (RMDs) for the inherited IRA, leaving a greater asset base to grow and cover future distributions.
To calculate the RMD for an inherited IRA (Table 1 – IRS Single Life Expectancy Table), divide the previous year-end account balance by the divisor (beneficiary’s life expectancy) corresponding to their respective age in the year following the death. This divisor is the IRS’s actuarial-based remaining life expectancy for the beneficiary, so each year, the divisor will decrease by 1, causing an increase in the percent of the account balance taken for the RMD.
The IRS provides a list of distribution options available to inherited IRA owners. Distribution options vary depending on whether the beneficiary was a spouse or non-spouse, and also whether the IRA owner passed away before their required beginning date (RBD), which is April 1 after they turn 70½. read more…
Visiting the Social Security Administration (SSA) office likely does not rank high on a list of enjoyable activities. The inconvenience, long waiting times, frustration with trying to implement a filing strategy, and difficulty in filing for first-time benefits are all reasons it’s usually not a positive experience. We’ve found that no matter how much analysis and thought we put into helping you find the most appropriate Social Security strategy for your household, we can’t control your experience when you visit the SSA office to implement those recommendations.
To eliminate many of these headaches, you can use a filing service provided through Social Security Advisors. Instead of visiting the SSA office, a specialist can walk you through the online social security application while you’re sitting at home. All you need is a phone, a computer with Internet access, and 30 to 45 minutes of time.
What to expect
You can schedule a meeting on your own and pay the $100 filing service fee on the Social Security Advisors website, or do it during a review meeting with your Merriman advisor.
Social Security Advisors then sends a confirmation email that includes a GoToMeeting invitation. GoToMeeting, similar to WebEx and other online virtual professional meeting services, allows the specialist to share their screen while working through the Social Security application with you. When you click the invitation, you’ll be prompted to download the GoToMeeting software. You can dial in for audio, or use your computer’s speakers and microphone.
Once the specialist submits the application, they’ll email you a copy for your records.
As an extra bonus, if the Social Security Administration misunderstands the application or an error is made, Social Security Advisors continues to provide support until the issue is fixed.
What are the limitations of this service?
The online application does not work for clients filing for Social Security death benefits and dependent benefits. Dependent benefits come about when a parent who has dependent minor children passes away. These children and the surviving spouse are then eligible to claim a portion of the deceased’s Social Security benefits. For both of these cases, the applicant still needs to visit the SSA office.
Who is Social Security Advisors?
Social Security Advisors has been in business for seven years, helping clients maximize their Social Security benefits and implement various strategies.
Merriman does not have a relationship with Social Security Advisors and doesn’t provide guarantees of their services, but we’ve found that their services do help improve clients’ experiences with the SSA.
Successful families agree that higher education is essential to the success of future generations, and they also realize that costs are only going to continue to rise. If paying for your children or grandchildren’s tuition is a must (similar to a liability), and you know the exact number of years until they start undergraduate or graduate school (their investment horizon), why not approach saving for their education like you would saving for retirement?
One such way to tackle this goal is through the use of 529 college savings plans. 529s are unique in that there are no income restrictions on contributions, and the contributions can grow and be withdrawn tax-free as long as the distributions go toward qualified expenses (tuition and fees, room and board, books, supplies, and equipment). However, the benefits to your family go much further.
In addition to providing Roth-like advantaged growth and withdrawals, 529 plan assets are also removed from the owner’s estate. This means if a parent or grandparent, who owns a 529 plan with a family member as a beneficiary, were to pass away, the value of the 529 plans would not be included in their gross estate1. And, the total contributions as of 2016 to individual 529 plans can be as high as $235,000 to $452,210 (Pennsylvania) per beneficiary, depending on which state you choose to open the plan. read more…
As consumers, we love low oil prices for the savings we receive at the pump. As investors in energy companies, we love high oil prices for the earnings and dividends.
Over the past 18 months, we’ve seen oil prices fall precipitously from around $100 per barrel to below $40 per barrel as of year-end. Similarly, big oil players such as ExxonMobil, Chevron and BP have seen declines in their stock prices of 23%, 31%, and 41%, respectively. Is this a value investment opportunity? Could be. Can oil prices fall further? Possibly. However, why worry or attempt to time or choose specific sectors of the stock market to invest in like energy, technology or healthcare? Just like other market events, it would be difficult, if not impossible, to consistently predict drops like we’ve seen in oil, and to determine how long prices will stay this low.
Instead, let’s consider how the prolonged drop in oil prices and the corresponding decline in energy stocks play into the overall stock market indices. For the MSCI All Country World Index (ACWI), the energy component makes up just 6.1% of the overall index. Over that same 18-month period, the global energy sector fell in price by 43%, while the overall MSCI ACWI declined by just 7%. If you owned only a market index, which would remove company- and industry-specific risk from your portfolio, the decline would have been dampened. In fact, when oil prices drop, consumers use those savings from the gas pump to buy products and services that boost other parts of the economy. In addition, industries whose costs are heavily impacted by oil prices, such as airlines and transports, greatly benefit from this shift. This leveling effect provided by investing in various indices can more importantly help keep you from falling off course from reaching your financial goals.
As a result, we continue to believe in the long-term benefits of broad-based diversification provided by investing in indices across the globe.
An investment portfolio is typically described as a basket of stocks and bonds invested across the global markets. These securities usually have sufficient liquidity where they could be sold in a relatively short period of time to receive your money. While not all investments fit this description perfectly, most investors’ portfolios reflect these characteristics, whether that portfolio is invested through an assortment of mutual funds, exchange traded funds or individual securities. In return for capital, the investor hopes to earn capital gains, dividends and interest on a regular basis. By that definition, should real estate holdings be considered as part of your investment portfolio?
Your personal residence has different characteristics. First off, it provides shelter, so it can be considered a necessity. Homes can take anywhere from a few weeks, months or even years to sell, so it wouldn’t be considered a liquid asset that can be sold readily. Also, a home is located in a particular neighborhood, city, state, region and country, so it’s exposed to location-specific risks. You don’t receive dividends and interest annually from owning your home. In fact, you spend money on maintenance, mortgage payments, property taxes and insurance. You can, however, generate capital gains, but that occurs only if your home is sold for a gain. Often, sellers turn around and use the proceeds to purchase a new residence.
From the description above, an investor’s personal residence lacks marketability and diversification, and it requires additional inputs of capital to maintain. Equity real estate investment trusts (REITs), on the other hand, are investable assets and provide exposure to commercial, agricultural, industrial and residential real estate across the country and most parts of the world. Families who own their homes may also own a few rental homes, but most don’t have expertise and resources to own commercial, industrial and agricultural real estate. Exchange traded funds and mutual funds can track equity REIT indices (i.e., FTSE NAREIT) and provide a low-cost, inflation fighting, diversified option with daily liquidity and low investment minimums.
Similar to the reasons for including other asset classes in an investment portfolio, such as emerging markets equity or reinsurance, exposure to real estate through equity REITs adds incremental value to the portfolio. This is because equity REITs are fundamentally different from other asset classes due to differences in taxation, correlation and inflation-fighting characteristics. As a result, we believe equity REITs are better suited than a residence for a well-balanced, diversified portfolio.