Reason #8 Why Clients Hire Merriman: We Hold You Accountable

Reason #8 Why Clients Hire Merriman: We Hold You Accountable

 

 

Our work at Merriman is all about empowering our clients to live their lives fully. Having a financial plan in place and professional investment management provides peace of mind that allows people to focus on what they love to do most.

We conducted a survey to see why our clients chose Merriman and why they’ve continued to work with us throughout the years. We compiled their top ten reasons—in their own words—and decided to showcase their responses in a ten-part blog series. This is part eight, out of ten.

Reason #8: “I’m grateful you guys hold me accountable. Otherwise, I probably wouldn’t do it.”

Staying accountable is a powerful tactic that works well whether you’re trying to eat more vegetables, show up to 52 yoga classes per year, or finish the first draft of your novel. The same applies in financial planning. You’re much more likely to stay on track when you’re regularly checking in with someone. That’s where we come in.

An advisor will help you take decisive action and hold you accountable to your plan, keeping you on track to achieve everything that’s important to you. Think of your financial path forward as something that’s all yours. We make a plan to mirror the life you’re hoping to live. This is about what you want and what you’re striving for. Then, we hold you to it.

If you’d like to feel more confident about your financial future, take the first step: contact us. We’ll get to know you, your goals, and your values, so you can start living life fully. We’re looking forward to hearing from you!

I’m Planning to Leave Assets to Charity – How Does the SECURE Act Change That?

I’m Planning to Leave Assets to Charity – How Does the SECURE Act Change That?

 

 

The Setting Every Community Up for Retirement Enhancement (SECURE) Act passed in late 2019, creating significant retirement and tax reforms with the goal of making retirement savings accessible to more Americans. We wrote a blog article detailing the major changes from this piece of legislation.

Now we’re going to dive deeper into some of the questions we’ve been receiving from our clients to shed more light on topics raised by the new legislation. We have divided these questions into six major themes; charitable giving, estate planning, Roth conversions, taxes, stretching IRA distributions, and trusts as beneficiaries.  Here is our first  of six installments on charitable giving.

 

In my estate plan, I’m planning to leave some of my assets to charity. What should I be mindful of with the passage of the SECURE Act?

Perhaps the largest consideration is which assets the charitable donation should be made from. While IRAs and other traditional retirement accounts have always been a good choice, the SECURE Act increases the value of using these accounts for charitable giving.

Because charities don’t pay taxes, they are not impacted by the new compressed RMD rules.

For an individual with traditional retirement accounts, Roth accounts, and taxable assets outside a retirement account wanting to give to charity from their estate, the preference would be:

  • Traditional IRA: Make charitable donations from here. Even if only part of the account is gifted to charity, the decreased remaining balance will reduce the taxable income the beneficiary realizes each year.
  • Roth IRA: Leave these to individuals instead of charities. Even though Roth IRAs still have annual RMD, the income removed from a Roth account will not be taxable for the beneficiary.
  • Taxable Accounts: Individuals should be preferred over charities. There is no requirement to take income in a given year, and the beneficiary likely received a step-up in cost basis, minimizing the tax impact when used.

If your goal is to both leave money to charity and create an annual stream of income for a beneficiary that lasts longer than the 10-year rule for new inherited IRAs, a charitable remainder trust may accomplish these goals.

As with all new legislation, we will continue to track the changes as they unfold and notify you of any pertinent developments that may affect your financial plan. If you have further questions, please reach out to us.

 

 

 

 

Disclosure: The material provided is current as of the date presented, and is for informational purposes only, and does not intend to address the financial objectives, situation, or specific needs of any individual investor. Any information is for illustrative purposes only, and is not intended to serve as personalized tax and/or investment advice since the availability and effectiveness of any strategy is dependent upon your individual facts and circumstances.  Investors should consult with a financial professional to discuss the appropriateness of the strategies discussed.

Reason #7 Why Clients Hire Merriman: We’re Encouraging

Reason #7 Why Clients Hire Merriman: We’re Encouraging

Our work at Merriman is all about empowering our clients to live their lives fully. Having a financial plan in place and professional investment management provides peace of mind that allows people to focus on what they love to do most.

We conducted a survey to see why our clients chose Merriman and why they’ve continued to work with us throughout the years. We compiled their top ten reasons why—in their own words—and decided to showcase their responses in a ten-part blog series. This is part seven, out of ten.

Reason #7: Merriman gives me encouragement when I need it most.”

Working out. Eating right. Making a financial plan. If any of us are going to transform healthy habits into a lifestyle, we all need support and encouragement along the way.

Last year, Aimee Butler, one of our Merriman Wealth Advisors who is also a certified Financial Planner, had a new year’s resolutions to focus on growing her yoga practice from attending 100 yoga classes per year to 150. You can read her whole story here: “Why Downward Dog is Greater Than Wine.

Whether it’s getting to a yoga class three times a week or scheduling a time to review your financial plan, Aimee found that it’s easiest to transform a small goal into a lifestyle when you find an accountability partner who keeps you on track and motivated. In the same way a personal trainer helps you get into shape, a financial advisor encourages and motivates you towards financial health. If you’re looking for a little encouragement, we’re here to help you find just that.

This year may be about spending more time with your family and less time in front of a screen. Or, it might be about booking that dream vacation or volunteering for a cause you care a lot about. If sitting down with a financial advisor is on your list, call us. We love being encouraging financial guides so you can get back to living your life to its fullest.

To learn more about how we can help you unlock financial freedom or to schedule a discovery meeting, contact us via our website or call 206-285-8877.

Should I Do a Roth Conversion?

Should I Do a Roth Conversion?

 

 

With all the recent changes to the U.S. tax code, it’s a good time to revisit different tax planning strategies. One strategy I’m often asked about is whether a Roth conversion is a good idea. The universal answer to that question is “maybe.” Unfortunately, there isn’t a simple rule of thumb that applies to everyone. There are many factors that need to be examined, and my goal is to tell you the most common reasons you might want to do a Roth conversion.

Before I do that, it’s important to note a particular change in our tax code with the passage of the Tax Cuts and Jobs Act (TCJA) of 2017. In the past, a recharacterization was done if you needed to “undo” the Roth conversion. Starting in 2018 and beyond, this is no longer allowed for Roth conversions. An exception is if you make a Roth contribution, and then learn that you earned too much income during that year. A recharacterization will still be allowed in this case so that you’re not subject to the excess contribution penalty tax. (more…)

The Coronavirus & Market Movements

The Coronavirus & Market Movements

 

 

Global equity markets have moved down sharply over the past couple of days. The immediate cause has been the spread of the coronavirus disease 2019 (COVD-19). Capital markets react in real time to aggregate predictions of the future and, on average, price in an overly pessimistic view compared to the ultimate outcome. Currently, there is growing fear of a large drop off in global business activity due to the spread of COVD-19 outside of China.

When we look at the most recent response of the S&P 500 to epidemics over the past 20 years, we see that the market generally has fallen sharply during outbreaks and then rebounded within 6 months. This response follows a pretty typical market pattern where there is overreaction due to uncertainty in the outcome and then a strong bounce back.

The more uncertain the scope of an event, the higher the volatility. The scope and impact of disease outbreaks on economic activity is incredibly difficult to predict. First, there is the uncertainty associated with how the disease will spread and how severely it will impact global citizens. COVD-19 is different than several of the most recent disease outbreaks (SARS, MERS, Zika Virus) in that most patients do not experience severe symptoms and recent data suggests that some people may be infected without showing any symptoms. These characteristics make the probability of a tragic outcome much less but also make it much more challenging to control the spread. Technology and communication have also advanced and are being leveraged to extents not previously possible. How these factors will influence the spread of disease is truly unknowable.

Even if we did know exactly who would be affected and how, the tie between the human cost and the economic cost is indirect at best. Government and business response will vary and may have profound or very little effect.

When there is a very limited data set, it is important not to jump to the conclusion that the past predicts the future. Just because markets have rebounded quickly in the past does not mark this as a buying opportunity. As discussed above, each epidemic is unique, and the ultimate impact is uncertain.

We are well into an economic expansion that is long, by historical standards. Bear markets typically have a trigger that is not necessarily the underlying cause, but more like the straw that breaks the camel’s back. The divide between the performance of US growth stocks and the rest of the global equity markets (US small and value stocks, international and emerging stocks) has reached levels not seen since the late 1990s. At some point, these large divergences have always closed. Whether a decade from now we will look back on COVD-19 as the triggering event for a major shift, no one knows.

Our investment approach, during market pullbacks and always, is to stay true to our disciplined rebalancing strategy. We don’t predict the future direction of the market or specifically buy or sell based on recent market movements. Rather, we consistently monitor your portfolio for under or overweight positions and execute trades to bring the portfolio back to target. Because of the continued relative outperformance of US growth stocks, many clients have reached the point where they are overweight in this asset class, which has resulted in sells in these positions and buys of underweight asset classes in the portfolio, typically bonds.

As the market has swooned, we have also been selling partial or full positions to capture unrealized losses which are used to offset taxable gains and reduce your overall tax bill. The cash generated from the sells is reinvested in a substitute position in the same asset class. Entering a substitute position maintains the target investment objective of the portfolio, keeping you positioned to achieve your long-term financial goals while locking in the tax savings.

We hope that through these times, you can find peace of mind in knowing that we are constantly monitoring your portfolio to ensure the best chance of success in achieving your goals. If you have any questions about activity in your portfolio, please don’t hesitate to reach out.

Things to Remember Around Tax Time if You’ve Made a Qualified Charitable Distribution

Things to Remember Around Tax Time if You’ve Made a Qualified Charitable Distribution

By reporting QCD’s correctly on your tax return, you rightfully receive the benefit of income exclusion.

Form 1099-R is issued around tax time to report distributions you withdrew during the previous year from a retirement account. A few of the things this form tells you and the IRS are: how much was withdrawn in total, how much of the distribution was taxable and whether there were any withholdings for federal and state income taxes.

If you gave part or all of your required minimum distribution directly to charity through making a QCD (qualified charitable distribution), this amount is still included in the taxable portion of your total distribution on form 1099-R. As you’ll see, the QCD is included in your gross distribution (box 1) and taxable amount (box 2a). However, the box for “taxable amount not determined” (box 2b) will be checked. Whether you work with a professional tax preparer, use software like TurboTax or prepare your own taxes by hand, it can be easy to forget that the QCD portion of your distribution should not be included on your tax return as taxable income. It’s important to keep a record of every QCD made during the year, and hold on to any correspondence that you receive from the charities that confirms the receipt of funds.

Below is a blank version of the 1099-R available on the IRS website.

 

 

This is a copy of a 1099-R issued by TD Ameritrade.

 

In this first example, the individual had a $70,000.00 gross (line 1) and taxable distribution (line 2a). The box next to “taxable amount not determined” (line 2b) is checked. Federal income tax of $8,000.00 was withheld (line 4). The distribution was considered a “normal distribution” because the distribution code 7 was used (line 7). What this 1099-R doesn’t tell you is that $20,000 of this individual’s RMD was a QCD, while the remaining $50,000 of the withdrawal was taxable.

As shown below, you should put the information from the 1099-R on the first page of your tax return (Form 1040) on line 4a and 4b. Here the individual had a total IRA distribution of $70,000. Of this distribution, $20,000 was a QCD. This means that the QCD won’t be included in the taxable income. If there is the option to do so, write “QCD” to the left of box 4b on your tax return. Here you would need to add the $8,000 federal income tax withheld from this IRA distribution to any other federal withholdings from W-2s and/or 1099s for the year on line 17 (page 2) of your tax return.

Remember to file IRS Form 8606 Nondeductible IRAs if you had basis (after-tax contributions) in the Traditional IRA from which you made the QCD, and took a regular distribution. You must also file this form if you made a QCD from your Roth IRA. However,  we would not suggest making a QCD from a Roth IRA since the account is after-tax versus pre-tax.

 

 

 

 

 

The material provided is current as of the date presented, and is for informational purposes only, and does not intend to address the financial objectives, situation, or specific needs of any individual investor. The specific example provided is for illustrative purposes only, and is not intended to serve as personalized tax and/or investment advice since the availability and effectiveness of any strategy is dependent upon your individual facts and circumstances.  Investors should consult with a tax professional to ensure all their tax paperwork is accurately filed.