Social Security by the Numbers

Facts about the federal Old-Age, Survivors, and Disability Insurance (OASDI) program. 

Social Security has been a pillar of retirement life for several decades, but how much do you really know about it? Here are some facts that might surprise you:

The Social Security trust fund exceeds the gross domestic product of every major economy in the world, except the nine largest: China, the European Union, the United States, India, Japan, Germany, Russia, Indonesia, and Brazil.1

For 61% of retirees, Social Security is a major source of income.1

Benefits are subject to federal income taxes, but it wasn’t always so. Amendments to the Social Security Act made benefits potentially taxable beginning in 1984.1

Benefits are determined by your average earnings during a lifetime of work, based on your 35 highest-earning years.1

If you receive Social Security, you no doubt welcome cost-of-living-adjustments (COLAs) to your benefits. Did you know that Social Security COLAs once required an act of Congress? That was the case before 1975, when they were finally pegged to advances in the Consumer Price Index.1

In the middle of 2018, more than 1 in 6 Americans were collecting Social Security benefits. Older Americans constitute about 80% of Social Security recipients, and their average monthly benefit in June 2018 was $1,413.2

When should you begin taking Social Security? That may depend on several factors, but many people choose to claim benefits as soon as they are eligible. You can receive benefits beginning at age 62, but you may choose to delay taking them. You can wait until age 70 to claim them, and if you take them before reaching Social Security’s Full Retirement Age (67 for those born in 1960 or later), your monthly benefit will be fractionally reduced. You may receive over one million dollars total in benefits across your retirement, so when and how you decide to take that income may be critical.1,3

Mike Moffitt may be reached at 641-782-5577 or email: mikem@cfgiowa.com

Website:  www.cfgiowa.com

Securities and Registered Investment Advisory Services offered through Silver Oak Securities, Inc., Member FINRA/SIPC. Silver Oak Securities, Inc. and Cornerstone Financial Group are separate entities.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 – https://www.waddell.com/explore-insights/market-news-and-guidance/planning/9-facts-about-social-security [2/13/19]
2 – https://www.cbpp.org/research/social-security/policy-basics-top-ten-facts-about-social-security [8/14/18]
3 – https://www.ssa.gov/planners/retire/agereduction.html [12/13/18]

Certain Uncertainties in Retirement

Two financial unknowns may erode our degree of confidence.   

The financial uncertainties we face in retirement may risk reducing our sense of confidence, potentially undermining our outlook during those years.

Indeed, according to the 2018 Retirement Confidence Survey by the Employee Benefits Research Institute, only 17% of pre-retirees said they are “very confident” about having enough assets to live comfortably in retirement. In addition, just 32% of retirees were “very confident” in their prospects for doing so.1

Today, retirees face two overarching uncertainties. While each one can lead even the best-laid strategies awry, it is important to remember that remaining flexible and responsive to changes in the financial landscape may help you meet the challenges posed by uncertainty in the years ahead.

An Uncertain Tax Structure. A mounting national debt and the growing liabilities of Social Security and Medicare are straining federal finances. How these challenges will be resolved remains unknown, but higher taxes – along with means-testing for Social Security and Medicare – are obvious possibilities for policymakers.

Whatever tax rates may be in the future, taxes can be a drag on your savings and may adversely impact your retirement security. Moreover, any reduction of Social Security or Medicare benefits has the potential to increase financial strain during your retirement.

Consequently, you will need to be ever mindful of a changing tax landscape and strategies to manage the impact of whatever changes occur.

Market Uncertainty. If you know someone who retired (or wanted to retire) in 2008, you know what market uncertainty can do to a retirement blueprint.

The uncertainties have not gone away. Are we at the cusp of a bond market bubble bursting? Will the eurozone find its footing? Will U.S. debt be a drag on our economic vitality?

Over a 30-year period, uncertainties may evaporate or resolve themselves, but new ones may also emerge. Solutions for one set of financial or economic circumstances may not be appropriate for a new set of circumstances.

Scottish philosopher Thomas Carlyle said, “He who could foresee affairs three days in advance would be rich for thousands of years.” Preparing for uncertainties is less about knowing what the future holds as it is being able to respond to changes as they unfold.2

Mike Moffitt may be reached at 641-782-5577 or mikem@cfgiowa.com

Website:  cfgiowa.com

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Securities and Registered Investment Advisory Services offered through Silver Oak Securities, Inc., Member FINRA/SIPC. Silver Oak Securities, Inc. and Cornerstone Financial Group are separate entities.

Citations.

1 – https://www.ebri.org/docs/default-source/rcs/1_2018rcs_report_v5mgachecked.pdf?sfvrsn=e2e9302f_2 [4/24/18]
2 – https://www.brainyquote.com/quotes/thomas_carlyle_118785 [12/17/18]

1099 Forms

Explaining these ubiquitous forms and their uses.

What is a 1099 form? This is a record of payment from an individual or entity, showing a payment, generated for your records. The individual/entity sends a copy to both the payee as well as the I.R.S.1

Who might be sending 1099s? Clients send their freelancers 1099s, recording work performed. Banks send 1099s to reflect interest from a savings account. A state may send a 1099 for a tax refund. If the financial institution who handles your retirement account writes you a check, they will also send you a 1099.1

In any event, a 1099 includes the taxpayer identification number or Social Security Number of the payee. Receiving the 1099 does not automatically mean that the payee owes tax, as there could be situations that offset that income, but it definitely means that the I.R.S. also has a record of that payment.1

There are many types of 1099 form. Here are a few of them:

1099-A. This form is a consequence of foreclosure or bank repossession of secured real property – “acquisition or abandonment,” in I.R.S. terms. Lenders send it to the foreclosed party and the buyer.1

1099-B. Brokers and barter exchanges report proceeds from securities, futures, commodities, or barter exchange transactions with a 1099-B.1

1099-C. The 1099-C reports debt cancellation. You must claim the indicated amount on the 1099-C form as income in the year the debt was forgiven. When you pay income taxes on that amount, the creditor cannot come after the debt again. This form sometimes follows a foreclosure.1

1099-CAP. This one is for those who own shares in a corporation that has been acquired or has undergone a significant change in capital structure. If it was sold or changes have been made where you’ve earned cash or stock, for example, this form would be necessary.1

1099-DIV. When you receive dividends, capital gain distributions, or liquidation distributions, you get one of these. For example, when a mutual fund sells off funds and realizes a capital gain, the fund informs you of your share of the capital gain through a 1099-DIV.1

1099-G. This form reports payments from government agencies and qualified state tuition programs – everything from state and local tax refunds and unemployment benefits to agriculture payments, gambling winnings, and taxable grants. It is usually issued to show unemployment benefits or a state tax refund.1

1099-INT. This form reports interest income of $10 or more, and sometimes other tax items related to interest income (such as federal tax withholding or early withdrawal penalties).1

 1099-LTC. As the LTC part hints, these forms report distributions (payments) from long term care insurance contracts and accelerated death benefits paid out as a result of a life insurance contract or a viatical settlement.1

1099-MISC. This category includes “miscellaneous income,” including awards and prizes.1

1099-OID. The 1099-OID reports the difference between the stated redemption price of a bond at maturity and the issue price of that bond.1

1099-PATR. This form reports patronage dividends, such as in a farm cooperative.1

 1099-Q. Have you been paying for school expenses from a 529 plan or a similar savings plan? Withdrawals will be reported on this form.1

1099-R. The 1099-R reports distributions from all types of retirement, pension, and profit-sharing plans as well as any IRA or annuity contract.1

1099-S. The 1099-S reports gross proceeds from real estate transactions or exchanges.1

1099-SA. This form reports distributions from Health Savings Accounts (HSA), Archer Medical Savings Accounts (Archer MSA), or Medicare Advantage Medical Savings Accounts (MA MSA).1

Questions? Are you thinking you should have received one of these forms? Or maybe sent one of these forms? Be sure to talk with a qualified tax professional or qualified financial professional today; they can help you generate, request, and understand the 1099 forms in question.

Mike Moffitt may be reached at 641-344-0328 or email: mikem@cfgiowa.com

Website:  www.cfgiowa.com

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Securities and Registered Investment Advisory Services offered through Silver Oak Securities, Inc., Member FINRA/SIPC. Silver Oak Securities, Inc. and Cornerstone Financial Group are separate entities.

Citations.

1 – nerdwallet.com/blog/taxes/what-is-a-1099-form/ [8/22/18]

Your Emergency Fund: How Much is Enough?

An emergency fund may help alleviate the stress associated with a financial crisis.

Have you ever had one of those months? The water heater stops heating, the dishwasher stops washing, and your family ends up on a first-name basis with the nurse at urgent care. Then, as you’re driving to work, giving yourself your best, “You can make it!” pep talk, you see smoke seeping out from under your hood.

Bad things happen to the best of us, and instead of conveniently spacing themselves out, they almost always come in waves. The important thing is to have a financial life preserver, in the form of an emergency cash fund, at the ready.

Although many people agree that an emergency fund is an important resource, they’re not sure how much to save or where to keep the money. Others wonder how they can find any extra cash to sock away. One recent survey found that 29% of Americans lack any emergency savings whatsoever.1

How Much Money? When starting an emergency fund, you’ll want to set a target amount. But how much is enough? Unfortunately, there is no “one-size-fits-all” answer. The ideal amount for your emergency fund may depend on your financial situation and lifestyle. For example, if you own your home or provide for a number of dependents, you may be more likely to face financial emergencies. And if the crisis you face is a job loss or injury that affects your income, you may need to depend on your emergency fund for an extended period of time.

Coming Up with Cash. If saving several months of income seems an unreasonable goal, don’t despair. Start with a more modest target, such as saving $1,000. Build your savings at regular intervals, a bit at a time. It may help to treat the transaction like a bill you pay each month. Consider setting up an automatic monthly transfer to make self-discipline a matter of course. You may want to consider paying off any credit card debt before you begin saving.

Once you see your savings begin to build, you may be tempted to use the account for something other than an emergency. Try to budget and prepare separately for bigger expenses you know are coming. Keep your emergency money separate from your checking account so that it’s harder to dip into.

Where Do I Put It? An emergency fund should be easily accessible, which is why many people choose traditional bank savings accounts. Savings accounts typically offer modest rates of return. Certificates of Deposit may provide slightly higher returns than savings accounts, but your money will be locked away until the CD matures, which could be several months to several years.

The Federal Deposit Insurance Corporation insures bank accounts and certificates of deposit (CDs) up to $250,000 per depositor, per institution in principal and interest. CDs are time deposits offered by banks, thrift institutions, and credit unions. CDs offer a slightly higher return than a traditional bank savings account, but they also may require a higher amount of deposit. If you sell before the CD reaches maturity, you may be subject to penalties.2

Some individuals turn to money market accounts for their emergency savings. Money market funds are considered low-risk securities, but they’re not backed by the federal government like CDs, so it is possible to lose money. Depending on your particular goals and the amount you have saved, some combination of lower-risk investments may be your best choice.2

Money held in money market funds is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Money market funds seek to preserve the value of your investment at $1.00 a share. However, it is possible to lose money by investing in a money market fund. Money market mutual funds are sold by prospectus.2

Please consider the charges, risks, expenses, and investment objectives carefully before investing. A prospectus containing this and other information about the investment company can be obtained from your financial professional. Read it carefully before you invest or send money.

The only thing you can know about unexpected expenses is that they’re coming – for everyone. But having an emergency fund may help alleviate the stress and worry associated with a financial crisis. If your emergency savings are not where they should be, consider taking steps today to create a cushion for the future.

Mike Moffitt may be reached at 641-782-5577 or mikem@cfgiowa.com
www.cfgiowa.com

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Securities and Registered Investment Advisory Services offered through Silver Oak Securities, Inc., Member FINRA/SIPC. Silver Oak Securities, Inc. and Cornerstone Financial Group are separate entities.

Citations.
1 – cnbc.com/2018/07/02/about-55-million-americans-have-no-emergency-savings.html [7/6/18]
2 – investor.vanguard.com/investing/cash-investments [12/13/18]

Coping with the Shutdown

A look at who is affected, and the potential economic impact.
Right now, many households across the country are contending with the financial pressures resulting from the partial federal government shutdown. About 800,000 federal workers have been furloughed, and about 4 million government contractors are now working for free. Besides the interruption of key services, the closures risk causing a degree of disruption in the economy.1

Nine federal departments have scaled back operations. The list: Agriculture, Commerce, Justice, Homeland Security, Housing and Urban Development, Interior, State, Transportation, and Treasury. (About 240,000 workers have been furloughed by Homeland Security alone.) Even so, many essential federal government services are still being provided. The Social Security Administration is continuing to send out retiree benefits, and the Postal Service is still delivering mail.2,3

The longer the shutdown lasts, the deeper its possible economic impact. Kevin Hassett, who chairs the Council of Economic Advisers, estimates that each week of the shutdown hurts quarterly GDP by 0.13%. If Hassett is correct, then first-quarter growth may already be about 0.5% short of federal government projections. Some analysts think the economy could contract in Q1 if the shutdown drags on through the start of spring.4

What options do furloughed workers have? The gig economy beckons, with short-term jobs that can be left behind with little notice if the shutdown ends. It may come down to driving for rideshare or meal delivery companies or working as a barista or waiter – something with a flexible or alternative schedule. Some can find part-time accounting, editing, or health and safety work. (The New York Times recently noted a turn-of-the-year spike in online job searches by workers at federal agencies.)4

Of course, some furloughed federal workers are barred from accepting interim employment. Those not classified as “excepted” or “exempt” cannot even volunteer while furloughed.3

On January 16, President Trump signed a bill into law to reimburse federal workers for lost wages when the shutdown ends. Furloughed federal employees who are receiving state unemployment benefits will have to return those benefits after they collect their back pay.3,5

As the gridlock continues, these employees and contractors are showing great patience and resourcefulness. Hopefully, they will not have to cope with financial anxieties and hardships much longer.

Mike Moffitt may be reached at 641-782-5577 or mikem@cfgiowa.com
Website: www.cfgiowa.com

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Securities and Registered Investment Advisory Services offered through Silver Oak Securities, Inc., Member FINRA/SIPC. Silver Oak Securities, Inc. and Cornerstone Financial Group are separate entities.

Citations.
1 – cnbc.com/2019/01/10/amid-shutdown-thousands-of-federal-workers-file-for-unemployment-.html [1/10/19]
2 – tinyurl.com/ycmnaqfl [1/1/19]
3 – oregonlive.com/business/2018/12/government-shutdown-2018-will-i-get-mail-what-about-social-security-benefits.html [12/26/18]
4 – nytimes.com/2019/01/15/us/politics/government-shutdown-economy.html [1/15/19]
5 – cnn.com/2019/01/16/politics/trump-signs-backpay-bill-government-shutdown/index.html [1/16/19]

The Anatomy of an Index

The S&P 500 represents a large portion of the value of the U.S. equity market.
Did you know that nearly $10 trillion in assets are benchmarked to the Standard & Poor’s 500 Composite Index, including about $3.5 trillion in index assets?1

The S&P 500 is ubiquitous. It is constantly referenced in financial and non-financial media, and we may compare the return of our own investments to its performance. As the index represents approximately 80% of the value of the U.S. equity market (or about 80% of market capitalization), it may be worthwhile to gain a better understanding of its structure and workings.1

Breaking down the benchmark. The S&P 500, as we know it today, was introduced in March 1957. It tracks the market value of about 500 large firms that are listed on the Nasdaq Composite and the New York Stock Exchange. The S&P is structured to include companies from across the sectors of the business community, in an effort to represent the breadth of the U.S. economy.1,2

There are a number of criteria a company must meet to be considered for inclusion in the index. A firm must be a U.S. company publicly listed on a major equity market exchange, have a market capitalization of $6.1 billion or more, and have at least 250,000 of its shares traded in each of the six months prior to its consideration for index membership by Standard & Poor’s. A company must also be financially viable: the ratio of its annual dollar value traded to its float-adjusted market cap must be greater than 1.0.3

The S&P has changed over time. Companies have been gradually removed and added over the past 60-odd years. At the benchmark’s fiftieth anniversary in 2007, just 86 of the original components remained. Subsequent mergers and acquisitions have reduced that number further.3

Right now, about 20% of the weight of the S&P is held in ten companies, and the performance of tech shares influences the benchmark’s return, perhaps more than any other factor.3

The index has been altered through the years in response to changes in the economy. Across several decades, the makeup of the index’s various sectors has differed, along with their weightings. This leads to frequent updates for the equity funds that aim to replicate the index; in order to maintain that replication, they may quickly need to buy or sell shares of corporations that are being added or removed.3

Keep in mind that amounts in mutual funds and ETFs are subject to fluctuation in value and market risk. Shares, when redeemed, may be worth more or less than their original cost. Equity funds are sold only by prospectus, so please consider their charges, risks, expenses, and investment objectives carefully before investing. A prospectus containing this and other information about the investment company can be obtained from your financial professional. Read it carefully before you invest or send money.

It should also be noted that investors cannot invest directly in an index. Also, index performance is not indicative of the past performance of a particular investment, and past performance does not guarantee future results. Investment choices designed to replicate any index may not perfectly track it, and their returns will be reduced by fees and expenses.

Mike Moffitt may be reached at 641-782-5577 or mikem@cfgiowa.com
www.cfgiowa.com

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Securities and Registered Investment Advisory Services offered through Silver Oak Securities, Inc., Member FINRA/SIPC. Silver Oak Securities, Inc. and Cornerstone Financial Group are separate entities.

Citations.
1 – https://us.spindices.com/indices/equity/sp-500 [12/5/18]
2 – https://www.investopedia.com/ask/answers/041015/what-history-sp-500.asp [11/12/18]
3 – https://www.fool.com/investing/2018/07/10/7-fascinating-facts-about-the-broad-based-sp-500.aspx [7/10/18]

Traditional vs. Roth IRAs

Perhaps both traditional and Roth IRAs can play a part in your retirement plans.

IRAs can be an important tool in your retirement savings belt, and whichever you choose to open could have a significant impact on how those accounts might grow.

IRAs, or Individual Retirement Accounts, are investment vehicles used to help save money for retirement. There are two different types of IRAs: traditional and Roth. Traditional IRAs, created in 1974, are owned by roughly 35.1 million U.S. households. And Roth IRAs, created as part of the Taxpayer Relief Act in 1997, are owned by nearly 24.9 million households.1

Both kinds of IRAs share many similarities, and yet, each is quite different. Let’s take a closer look.

Up to certain limits, traditional IRAs allow individuals to make tax-deductible contributions into the retirement account. Distributions from traditional IRAs are taxed as ordinary income, and if taken before age 59½, may be subject to a 10% federal income tax penalty. For individuals covered by a retirement plan at work, the deduction for a traditional IRA in 2019 has been phased out for incomes between $103,000 and $123,000 for married couples filing jointly and between $64,000 and $74,000 for single filers.2,3

Also, within certain limits, individuals can make contributions to a Roth IRA with after-tax dollars. To qualify for a tax-free and penalty-free withdrawal of earnings, Roth IRA distributions must meet a five-year holding requirement and occur after age 59½. Like a traditional IRA, contributions to a Roth IRA are limited based on income. For 2019, contributions to a Roth IRA are phased out between $193,000 and $203,000 for married couples filing jointly and between $122,000 and $137,000 for single filers.2,3

In addition to contribution and distribution rules, there are limits on how much can be contributed to either IRA. In fact, these limits apply to any combination of IRAs; that is, workers cannot put more than $6,000 per year into their Roth and traditional IRAs combined. So, if a worker contributed $3,500 in a given year into a traditional IRA, contributions to a Roth IRA would be limited to $2,500 in that same year.4

Individuals who reach age 50 or older by the end of the tax year can qualify for annual “catch-up” contributions of up to $1,000. So, for these IRA owners, the 2019 IRA contribution limit is $7,000.4

If you meet the income requirements, both traditional and Roth IRAs can play a part in your retirement plans. And once you’ve figured out which will work better for you, only one task remains: opening an account.
Mike Moffitt may be reached at 641-782-5577 or mikem@cfgiowa.com
Website: www.cfgiowa.com

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Securities and Registered Investment Advisory Services offered through Silver Oak Securities, Inc., Member FINRA/SIPC. Silver Oak Securities, Inc. and Cornerstone Financial Group are separate entities.

Citations.
1 – https://www.ici.org/pdf/per23-10.pdf [12/17]
2 – https://www.marketwatch.com/story/gearing-up-for-retirement-make-sure-you-understand-your-tax-obligations-2018-06-14 [6/14/18]
3 – https://money.usnews.com/money/retirement/articles/new-401-k-and-ira-limits [11/12/18]
4 – https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-ira-contribution-limits [11/2/18]

Your 2019 Financial To-Do List

Things you can do for your future as the year unfolds.
What financial, business, or life priorities do you need to address for 2019? Now is a good time to think about the investing, saving, or budgeting methods you could employ toward specific objectives, from building your retirement fund to lowering your taxes. You have plenty of options. Here are a few that might prove convenient.

Can you contribute more to your retirement plans this year? In 2019, the yearly contribution limit for a Roth or traditional IRA rises to $6,000 ($7,000 for those making “catch-up” contributions). Your modified adjusted gross income (MAGI) may affect how much you can put into a Roth IRA: singles and heads of household with MAGI above $137,000 and joint filers with MAGI above $203,000 cannot make 2019 Roth contributions.1

For tax year 2019, you can contribute up to $19,000 to 401(k), 403(b), and most 457 plans, with a $6,000 catch-up contribution allowed if you are age 50 or older. If you are self-employed, you may want to look into whether you can establish and fund a solo 401(k) before the end of 2019; as employer contributions may also be made to solo 401(k)s, you may direct up to $56,000 into one of those plans.1

Your retirement plan contribution could help your tax picture. If you won’t turn 70½ in 2019 and you participate in a traditional qualified retirement plan or have a traditional IRA, you can cut your taxable income through a contribution. Should you be in the new 24% federal tax bracket, you can save $1,440 in taxes as a byproduct of a $6,000 traditional IRA contribution.2

What are the income limits on deducting traditional IRA contributions? If you participate in a workplace retirement plan, the 2019 MAGI phase-out ranges are $64,000-$74,000 for singles and heads of households, $103,000-$123,000 for joint filers when the spouse making IRA contributions is covered by a workplace retirement plan, and $193,000-$203,000 for an IRA contributor not covered by a workplace retirement plan, but married to someone who is.1

Roth IRAs and Roth 401(k)s, 403(b)s, and 457 plans are funded with after-tax dollars, so you may not take an immediate federal tax deduction for your contributions to them. The upside is that if you follow I.R.S. rules, the account assets may eventually be withdrawn tax free.3

Your tax year 2019 contribution to a Roth or traditional IRA may be made as late as the 2020 federal tax deadline – and, for that matter, you can make a 2018 IRA contribution as late as April 15, 2019, which is the deadline for filing your 2018 federal return. There is no merit in waiting until April of the successive year, however, since delaying a contribution only delays tax-advantaged compounding of those dollars.1,3

Should you go Roth in 2019? You might be considering that if you only have a traditional IRA. This is no snap decision; the Internal Revenue Service no longer gives you a chance to undo it, and the tax impact of the conversion must be weighed versus the potential future benefits. If you are a high earner, you should know that income phase-out limits may affect your chance to make Roth IRA contributions. For 2019, phase-outs kick in at $193,000 for joint filers and $122,000 for single filers and heads of household. Should your income prevent you from contributing to a Roth IRA at all, you still have the chance to contribute to a traditional IRA in 2019 and go Roth later.1,4

Incidentally, a footnote: distributions from certain qualified retirement plans, such as 401(k)s, are not subject to the 3.8% Net Investment Income Tax (NIIT) affecting single/joint filers with MAGIs over $200,000/$250,000. If your MAGI does surpass these thresholds, then dividends, royalties, the taxable part of non-qualified annuity income, taxable interest, passive income (such as partnership and rental income), and net capital gains from the sale of real estate and investments are subject to that surtax. (Please note that the NIIT threshold is just $125,000 for spouses who choose to file their federal taxes separately.)5

Consult a tax or financial professional before you make any IRA moves to see how those changes may affect your overall financial picture. If you have a large, traditional IRA, the projected tax resulting from a Roth conversion may make you think twice.

What else should you consider in 2019? There are other things you may want to do or review.

Make charitable gifts. The individual standard deduction rises to $12,000 in 2019, so there will be less incentive to itemize deductions for many taxpayers – but charitable donations are still deductible if they are itemized. If you plan to gift more than $12,000 to qualified charities and non-profits in 2019, remember that the paper trail is important.6

If you give cash, you need to document it. Even small contributions need to be demonstrated by a bank record or a written communication from the charity with the date and amount. Incidentally, the I.R.S. does not equate a pledge with a donation. You must contribute to a qualified charity to claim a federal charitable tax deduction. Incidentally, the Tax Cuts and Jobs Act lifted the ceiling on the amount of cash you can give to a charity per year – you can now gift up to 60% of your adjusted gross income in cash per year, rather than 50%.6,7

What if you gift appreciated securities? If you have owned them for more than a year, you will be in line to take a deduction for 100% of their fair market value and avoid capital gains tax that would have resulted from simply selling the investment and donating the proceeds. The non-profit organization gets the full amount of the gift, and you can claim a deduction of up to 30% of your adjusted gross income.8

Does the value of your gift exceed $250? It may, and if you gift that amount or larger to a qualified charitable organization, you should ask that charity or non-profit group for a receipt. You should always request a receipt for a cash gift, no matter how large or small the amount.8

If you aren’t sure if an organization is eligible to receive charitable gifts, check it out at irs.gov/Charities-&-Non-Profits/Exempt-Organizations-Select-Check.

Open an HSA. If you are enrolled in a high-deductible health plan, you may set up and fund a Health Savings Account in 2019. You can make fully tax-deductible HSA contributions of up to $3,500 (singles) or $7,000 (families); catch-up contributions of up to $1,000 are permitted for those 55 or older. HSA assets grow tax deferred, and withdrawals from these accounts are tax free if used to pay for qualified health care expenses.9

Practice tax-loss harvesting. By selling depreciated shares in a taxable investment account, you can offset capital gains or up to $3,000 in regular income ($1,500 is the annual limit for married couples who file separately). In fact, you may use this tactic to offset all your total capital gains for a given tax year. Losses that exceed the $3,000 yearly limit may be rolled over into 2020 (and future tax years) to offset ordinary income or capital gains again.10

Pay attention to asset location. Tax-efficient asset location is an ignored fundamental of investing. Broadly speaking, your least tax-efficient securities should go in pre-tax accounts, and your most tax-efficient securities should be held in taxable accounts.

Review your withholding status. You may have updated it last year when the I.R.S. introduced new withholding tables; you may want to adjust for 2019 due to any of the following factors.

* You tend to pay a great deal of income tax each year.
* You tend to get a big federal tax refund each year.
* You recently married or divorced.
* A family member recently passed away.
* You have a new job, and you are earning much more than you previously did.
* You started a business venture or became self-employed.

Are you marrying in 2019? If so, why not review the beneficiaries of your workplace retirement plan account, your IRA, and other assets? In light of your marriage, you may want to make changes to the relevant beneficiary forms. The same goes for your insurance coverage. If you will have a new last name in 2019, you will need a new Social Security card. Additionally, the two of you, no doubt, have individual retirement saving and investment strategies. Will they need to be revised or adjusted once you are married?

Are you coming home from active duty? If so, go ahead and check the status of your credit and the state of any tax and legal proceedings that might have been preempted by your orders. Make sure any employee health insurance is still in place. Revoke any power of attorney you may have granted to another person.

Consider the tax impact of any upcoming transactions. Are you planning to sell (or buy) real estate next year? How about a business? Do you think you might exercise a stock option in the coming months? Might any large commissions or bonuses come your way in 2019? Do you anticipate selling an investment that is held outside of a tax-deferred account? Any of these actions might significantly impact your 2019 taxes.

If you are retired and older than 70½, remember your year-end RMD. Retirees over age 70½ must begin taking Required Minimum Distributions from traditional IRAs, 401(k)s, SEP IRAs, and SIMPLE IRAs by December 31 of each year. The I.R.S. penalty for failing to take an RMD equals 50% of the RMD amount that is not withdrawn.4,11

If you turned 70½ in 2018, you can postpone your initial RMD from an account until April 1, 2019. All subsequent RMDs must be taken by December 31 of the calendar year to which the RMD applies. The downside of delaying your 2018 RMD into 2019 is that you will have to take two RMDs in 2019, with both RMDs being taxable events. You will have to make your 2018 tax year RMD by April 1, 2019, and then take your 2019 tax year RMD by December 31, 2019.11

Plan your RMDs wisely. If you do so, you may end up limiting or avoiding possible taxes on your Social Security income. Some Social Security recipients don’t know about the “provisional income” rule – if your adjusted gross income, plus any non-taxable interest income you earn, plus 50% of your Social Security benefits surpasses a certain level, then some Social Security benefits become taxable. Social Security benefits start to be taxed at provisional income levels of $32,000 for joint filers and $25,000 for single filers.11

Lastly, should you make 13 mortgage payments in 2019? There may be some merit to making a January 2020 mortgage payment in December 2019. If you have a fixed-rate loan, a lump-sum payment can reduce the principal and the total interest paid on it by that much more.

Talk with a qualified financial or tax professional today. Vow to focus on being healthy and wealthy in 2019.

Mike Moffitt may be reached at 641-782-5577 or mikem@cfgiowa.com
www.cfgiowa.com

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Securities and Registered Investment Advisory Services offered through Silver Oak Securities, Inc., Member FINRA/SIPC. Silver Oak Securities, Inc. and Cornerstone Financial Group are separate entities.

Citations.
1 – forbes.com/sites/ashleaebeling/2018/11/01/irs-announces-2019-retirement-plan-contribution-limits-for-401ks-and-more [11/1/18]
2 – irs.com/articles/2018-federal-tax-rates-personal-exemptions-and-standard-deductions [11/2/17]
3 – irs.gov/Retirement-Plans/Traditional-and-Roth-IRAs [7/10/18]
4 – forbes.com/sites/bobcarlson/2018/10/26/7-ira-strategies-for-year-end-2018/ [10/26/18]
5 – irs.gov/newsroom/questions-and-answers-on-the-net-investment-income-tax [6/18/18]
6 – crainsdetroit.com/philanthropy/what-donors-need-know-about-tax-reform [10/21/18]
7 – thebalance.com/tax-deduction-for-charity-donations-3192983 [7/25/18]
8 – schwab.com/resource-center/insights/content/charitable-donations-the-basics-of-giving [7/2/18]
9 – kiplinger.com/article/insurance/T027-C001-S003-health-savings-account-limits-for-2019.html [8/28/18]
10 – schwab.com/resource-center/insights/content/reap-benefits-tax-loss-harvesting-to-lower-your-tax-bill [10/7/18]
11 – fool.com/retirement/2018/01/29/5-things-to-consider-before-tapping-your-retiremen.aspx [1/29/18]

Seasons Greetings and a Quick Market Update

I hope you had a very Merry Christmas and holiday season and all of us at Cornerstone Financial Group wish you a Happy New Year in 2019!

I thought it would be important to reach out to give a quick update on some of the facts regarding what’s been going on in the stock and bond markets recently as we approach the end of 2018 and look into 2019. I’ll try to make this short but concise, and stick with what we know and what we don’t!
In an earlier letter to all clients at the end of September, I mentioned we were overdue for a bear market, which is defined by Investopedia as decline of 20% or more.1 As I write this the day after Christmas, the S&P 500 index has now officially declined 20% from it’s high on September 21. The Dow Jones 30 Industrials index is not quite there, but very close. The NASDAQ 100 index is down more than 20%. Google is down about 23%, Apple down about 37% and Netflix down over 40%. So it’s safe to say we’ve achieved bear market status.

Bear markets typically happen about every 3.5 years. Doing a little research, I found the average bear market decline was 35.4%.2 This could indicate the current bear market has a while yet to run. The average bear market lasts about 10 months – we’re just over 3 months into this one. It’s easy to say that investors should get out at the top of the market and back in at the bottom, right? In reality, this is quite hard to do since we only know the high and the low in hindsight. So how do we manage risk in client portfolios?

There are multiple ways to handle risk. Many investors and advisors build diversified portfolios that hold assets other than stocks, such as bonds. Earlier in the year as interest rates worked higher (often bonds drop in value as interest rates rise) our bond portfolios were a drag on performance but we always anticipated that when we finally saw the larger correction the bonds would help us manage through it. This has proved accurate as the bond holdings now are helping protect capital. During the last couple of years, we also recommended and invested in FDIC-insured market-linked Certificates of Deposit for clients wishing to protect a portion of their portfolios. While these are priced somewhat in relationship to the value of their underlying holdings, which have been generally lower, they do have FDIC insurance protection at maturity so we feel comfortable that these will protect capital. As a result of these actions, for those people who have completed risk tolerance surveys we believe their portfolios should be pretty well aligned with their stated risk tolerance.

Other options we have used include traditional CDs, fixed index annuities, high quality (or insured) bonds that you can hold to maturity, or buying put options (a little more complicated strategy). But in general, our plan through corrections (and I’ve lived through 5 of them in my career) is to help you build portfolios that can potentially help you keep risk within your comfort level. If your risk comfort level is high, it’s true that stocks have outperformed many alternatives and based on an NYU study has vastly outperformed government-guaranteed United States treasury bills and bonds.3
What is ahead? Most likely uncertainty. A weak or slowing economy may bring on a bear market — the signs of a weak or slowing economy are typically low employment, low disposable income, weak productivity and a drop in business profits. That doesn’t seem to be the case right now, however. In addition, any intervention by the government in the economy may also trigger a bear market. We may be seeing that with the China tariff situation. A drop in investor confidence may also signal the onset of a bear market.

But at these levels, many stocks are fairly priced based on their historical price/earnings ratios. It’s a little like a sale at a department store. When you see a sale where an item is 20% off, you know that is a better price than it used to be. But what you don’t know is if that item might be marked down further – which would represent a better deal! While there are in general no guarantees in investing, I’m as confident there will be a rally next year as I was earlier this year that there was a correction coming around the corner. So I do not believe this is a good time to be a seller. It’s probably a better time to be a buyer but the “mark downs” might not be done yet, either. Patience is the best virtue to have here. If you believe your risk tolerance is changing as you watch the market move, we should use the next rally as an opportunity to shift your portfolio to a more conservative mix.
Feel free to give me a call if you wish to discuss this further.

Sincerely,
Mike

Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal advice or accounting services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Securities and Registered Investment Advisory Services offered through Silver Oak Securities, Inc., Member FINRA/SIPC. Silver Oak Securities, Inc. and Cornerstone Financial Group are separate entities.

Citations
1 – https://www.investopedia.com/terms/b/bearmarket.asp
2 – https://www.gold-eagle.com/article/history-us-bear-bull-markets-1929
3 – http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/histretSP.html

Putting a Price Tag on Your Health

Being healthy not only makes you feel good, it may also help you financially.

We constantly hear how important it is to maintain a healthy lifestyle. That is not always easy, especially in the face of temptation or the easy option of procrastination. For some, the monetary benefits of maintaining a healthy lifestyle may provide an incentive.

Being healthy not only makes you feel good, it may also help you financially. For example, a recent Johns Hopkins Bloomberg School of Public Health study determined that a 40-year-old who simply moves from being obese to overweight could save an average of $18,262 in health care costs over the rest of his or her lifetime. If that person maintains a healthy weight, the average potential savings increase to $31,447.1

If you’re wondering how your health habits might be affecting your bottom line, consider the following:

Regular preventative care can help reduce potential health care costs. Even minor illnesses can lead to missed work, missed opportunities, and potentially lost wages. Serious illnesses often involve major costs like hospital stays, medical equipment, and doctor’s fees. Preventative dentistry may help you reduce dental costs as well.

In a way, staying healthy helps our potential to save for retirement. If your health declines to the point where you cannot work, that hurts your income and your ability to contribute to retirement accounts. The threat is real: the Social Security Administration notes that a quarter of us will become disabled at some point during our working years.2

Overweight workers may be subjected to wage discrimination. A LinkedIn study of almost 4,000 full-time and part-time workers found that the workers whose weights were greater than normal earned an average of $2,512 less annually than the others.3

Higher weight seems to be a factor in overall health care costs for many. Ask the Centers for Disease Control and Prevention. The CDC notes that per-year health care expenses are about 41% higher ($4,870) for an obese individual than for a person of normal weight ($3,400). The biggest factor in this difference: prescription drug costs.4

Some habits that lead to poor health can be expensive in themselves. Smoking is the classic example. A pack of cigarettes costs anywhere from $5-14, which means ballpark expenses of $2,000-5,000 or more a year in expenses for a pack-a-day smoker. Smokers also pay higher premiums for health, disability, and life insurance.5

By focusing on your health, eliminating harmful habits, and employing preventative care, you may be able to improve your self-confidence and quality of life. You may also be able to reduce expenses, enjoy more of your money, and boost your overall financial health.

Mike Moffitt may be reached at 641-782-5577 or mikem@cfgiowa.com
Website: www.cfgiowa.com

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Securities and Registered Investment Advisory Services offered through Silver Oak Securities, Inc., Member FINRA/SIPC. Silver Oak Securities, Inc. and Cornerstone Financial Group are separate entities.

Citations.
1 – https://www.bankrate.com/banking/savings/healthier-lifestyle-can-save-you-money/ [9/25/18]
2 – https://www.cnbc.com/2018/11/11/protect-yourself-from-a-career-derailment-that-trips-up-1-in-4-workers.html [11/11/18]
3 – https://www.foxbusiness.com/features/employers-pay-overweight-workers-less-new-study-reveals [11/5/18]
4 – https://abcnews.go.com/Health/Healthday/story?id=8184975&page=1 [7/28/18]
5 – https://money.usnews.com/money/personal-finance/family-finance/articles/the-real-cost-of-smoking [11/20/18]