Merriman Wealth Management, LLC, an independent wealth management firm with over $2.5 billion in assets under management, is pleased to announce the promotion of Geoffrey Curran, CPA/ABV, CFA, CFP® to principal.
“Geoff’s contribution and dedication to Merriman and our clients has been invaluable as we seek to be the destination for clients and employees who are looking to Live Fully,” said Jeremy Burger, CFA, CFP®, CEO of Merriman. Merriman is proud to offer a path to partnership for those individuals who demonstrate through their contributions a strong commitment to improving the lives of our clients, helping the firm grow and giving back to their communities. With the addition of Geoff, Merriman now has 15 principals.
Geoffrey joined Merriman as a Wealth Advisor in January 2016 after spending three years at TD Ameritrade. Geoff graduated from the University of Tulsa and has earned three of the most distinguished credentials in the industry – CERTIFIED FINANCIAL PLANNERTM professional (CFP®), Certified Public Accountant (CPA), and Chartered Financial Analyst® charterholder (CFA). Geoff is an active member of the South Puget Sound community including serving on the investment committees for the Tacoma Employees’ Retirement System pension and the Greater Tacoma Community Foundation.
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 A few of the things this form tells you and the IRS are: how much was withdrawn in total, how much of the distribution was taxable and whether there were any withholdings for federal and state income taxes.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.
As many of you know, my wife and I had our first child earlier this year. As such, we’ve been slowly working on improvements around our house to make it more kid safe. One project was to upgrade our garage door openers to the 21st century to include the safety reverse sensors. To fund this project, we used the money set aside from the monthly contribution to our home improvements fund. So far so good, right?
What happened next is similar to what many people do when deciding whether to hire a professional to help them.
For this project, I decided to replace my garage door openers on my own. I had never done it before, but I convinced myself that I could do it because of the following considerations:
Time – I’d need to be home while the installation pro was there anyway, so why not just use that time to install them myself? Importantly, I could do it when it wouldn’t impact my wife or son.
Cost – I didn’t want to pay for a professional to install the garage door openers. By doing it myself, we could save our hard-earned money and put it in savings or toward other projects.
Privacy – I simply didn’t want a stranger in my home, even if it was only for a couple of hours in our garage.
Resources –With all of the YouTube how-to videos, forums, and step-by-step guides available online, I thought it would easy to figure out how to do it. Clearly, many others with similar skills had been successful.
Here’s what I learned the hard way after spending 10 plus hours on this project, without installing even one garage door opener successfully:
Time – The project ended up taking four times what I thought it would, without success! I wasn’t very popular with my wife as she had to pick up my slack on the weekend chores and baby duty.
Lesson 1 – A professional could have installed each garage door opener in 45 minutes. I could have spent my time (our most limited resource) in far better ways.
Cost – I ended up paying a professional to install the garage door openers. I was left with a tough choice of paying a small fortune to get them installed right away (my car was outside since I removed a garage door opener) or wait for their regular scheduling. And, I had to replace a couple of parts that I damaged (argh!) and buy a wrench set that I likely won’t use.
Lesson 2 – Focusing only on cost is a mistake. It’s super important to also consider the value of your time. It might have made sense for me to take on this project if it took just two hours to complete, but 10 plus hours – no way!
Privacy – I was anxious about this at first, but the benefit of not having to do it myself eased my mind (especially after what I’d gone through!).
Lesson 3 – A professional is licensed, insured, experienced, and vetted. While my apprehension may lead me to believe that having a stranger in my home is a risk, this was not the case with a professional.
Resources – In hindsight, all the video tutorials and guides in the world wouldn’t have made this project easier. The actual installation was infinitely more difficult than the installation videos made it look.
Lesson 4 – Implementing a task, project or plan is the hardest part of any process. Too often, one part does not go according to plan, throwing everything off. There’s simply no substitute for expertise.
The last consideration I overlooked, which could have been the costliest, is risk. The risks include:
I could have installed the safety sensors or garage door opener incorrectly, causing a family member to be seriously injured. Or, the car could have been damaged.
The garage door opener could have fallen on me during the removal of my old opener and the installation of the new one (especially since we didn’t have the right height of ladder as recommended in the instructions – I didn’t want to buy a new ladder).
I could have injured myself with the disassembly of the old garage door opener or during the assembly of the new garage door opener. Mistakes and injuries happen more often than we think with DIY projects.
I could have damaged major parts (beyond what I already did!), which could have cost me a lot more money. Warranties and store policy exchanges don’t protect against negligence and true ignorance.
We hired a professional to minimize these risks for our family.
As a note: My wife recommended from the start that we hire a professional to install the garage door openers. I learned my lesson here, too! As such, I had to park my car out in the cold until my garage door was fixed. Going forward, I will forever remember these lessons because time is our most finite resource and we need to be more intentional with how we spend it.
Updated 10/07/2019 by Geoff Curran, Jeff Barnett, & Scott Christensen
National real estate prices have been on the rise since 2014, and many investors who jumped into the rental industry since the Great Recession have substantial gains in property values (S&P Dow Jones Indices, 2019). You might be considering selling your rental to lock in profits and enjoy the fruits of your well-timed investment, but realizing those gains could come at a cost. You could owe capital gains tax in addition to potential depreciation recapture on the profits from your rental sale.
One strategy for paying less tax is to move back into your rental and use the property as a primary residence before selling. Living in your rental full-time for at least two years prior to selling can help you take advantage of the gain exclusion of $500,000 ($250,000 if single), which can wipe out all or most of your gain on the property. Sounds easy, right?
Let’s take a look at some of the moving pieces for determining the taxes when you sell your rental. Factors like depreciation recapture, qualified vs. non-qualified use and adjusted cost basis could make you think twice before moving back into your rental to avoid taxes.
One of the benefits of having a rental is the ability to claim depreciation on the property, which allows you to offset rental income that would otherwise be taxed as ordinary income. The depreciation you take reduces your basis in the property, potentially resulting in more capital gains when you ultimately sell. If you sell the property for a gain, the amount up to the depreciation you took is taxed at the maximum recapture rate of 25%. Any remaining gains are taxed at the lower long-term capital gains rate. Moving back into your rental to claim the primary residence gain exclusion does not allow you to exclude your depreciation recapture, so you might still owe a hefty tax bill after moving back, depending on how much depreciation was deducted. (IRS, 2019).
When the Property Sells for a Loss
Keep in mind that if you sell your home for a loss, whether it’s currently a rental or is now your primary residence, you aren’t subject to depreciation recapture or other gains taxes. However, due to depreciation decreasing your cost basis in the property each year until it reaches zero, it’s more common that sales of former rental homes result in gains. (more…)
Have you received a pay raise, bonus or an inheritance and as a result changed your spending habits? Have you bought things such as expensive items, cars or even a new home because of one of these events? Soon, your lifestyle starts to inflate or creep to where your standard of living resets at this new higher income level. Spending can quickly become unsustainable if your income doesn’t stay at the same pace and continue to rise. Importantly, you’ll need to save substantially more now to continue that lifestyle in retirement than originally planned. From experience, most families continue at near the same spending level if not more in retirement, especially when grandchildren enter the picture!
There isn’t any harm with spending more money if you make more, however you need to also increase your savings for important goals at the same level. For example, if your income is now $250,000 or above, you’ll need to save quite a bit more than the $19,000 401(k) contribution to maintain your lifestyle when you decide to retire. These savings targets increase much more if you want to “make work optional” at an earlier age.
It’s inevitable that your income will rise as you progress through your career, however there are good habits to follow to prepare for the future while still enjoying the “now”:
Prepare and follow a budget
No matter your income level, having a household budget is key to achieving your goals. It allows you to put all your income and expenses on one sheet of paper to determine how much savings you can automate each month. Many households are cash flow “rich” thereby they are best served by figuring out monthly savings targets. This article discusses a budget technique that can be used as a template for your budgeting. It’s especially important to have a cash flow plan for families where cash bonuses and restricted stock make up a large portion of their annual income.
Develop and adhere to a pre-determined plan for extra income
If you receive a bonus, you should have a pre-determined savings allocation for those extra resources. This meaning that of the bonus that you receive after-tax, possibly 25% is allocated to spending (i.e. the fun stuff), 25% to travel and short-term savings, and 50% to long-term savings. That way, you get to spend and enjoy a large portion of your bonus while also saving a large sum towards the future. Too often do people receive a bonus and quickly spend it. Having a pre-determined plan or formula for how to allocate these excess dollars is important as your budget won’t account for this income.
Routinely update your retirement projections
Your financial plan needs to be updated each time your spending level increases as the plan is not going to be successful if it is based on $100,000 of annual spending in retirement when your lifestyle now requires $200,000 a year. Many households attempt to exclude child costs from this figure as they won’t have dependents in retirement, however experience has taught that the spending has been replaced by spending on trips and supporting children and grandchildren.
We suggest reading the book Making Work Optional: Steps to Financial Freedom to learn about how best to prioritize your savings to achieve your long-term goals. Importantly, make sure to read the section about “mistakes to avoid” on your path to financial freedom.
Please contact Merriman if you have any questions about developing a cash flow plan or for any of your other financial planning needs.
With fall fast approaching, it’s time to take care of a few things before year end that can also set you up for the start of next year.
Retirement contributions and withdrawals – Just as it’s important to make the necessary contributions to your retirement plan based on your financial plan, you must also take your required minimum distribution (RMD) by December 31 to avoid any penalties if above age 70 ½ or own an inherited IRA. The Merriman Client Services team is hard at work making sure these are all completed for clients. Contributions: The deadline for 2018 Roth IRA and Traditional IRA contributions is April 15, 2020.