The Many Benefits of a Roth IRA

Why do so many people choose it rather than a traditional IRA?

The Roth IRA changed the whole retirement savings perspective. Since its introduction, it has become a fixture in many retirement planning strategies. Here is a closer look at the trade-off you make when you open and contribute to a Roth IRA – a trade-off many savers are happy to make.

You contribute after-tax dollars. You have already paid income tax on the dollars going into the account, but in exchange for paying taxes on your retirement savings contributions today, you could potentially realize greater benefits tomorrow.1 

You position the money for tax-deferred growth. Roth IRA earnings aren’t taxed as they grow and compound. If, say, your account grows 6% a year, that growth will be even greater when you factor in compounding. The earlier in life that you open a Roth IRA, the greater compounding potential you have.2

You can arrange tax-free retirement income. Roth IRA earnings can be withdrawn tax-free as long as you are age 59½ or older and have owned the IRA for at least five tax years. The IRS calls such tax-free withdrawals qualified distributions. They may be made to you during your lifetime or to a beneficiary after you die. (If you happen to die before your Roth IRA meets the 5-year rule, your beneficiary will see the Roth IRA earnings taxed until it is met.)1,3

If you withdraw money from a Roth IRA before you reach age 59½ or have owned the IRA for five tax years, that is a nonqualified distribution. In this circumstance, you can still withdraw an amount equivalent to your total IRA contributions to that point, tax-free and penalty-free. If you withdraw more than that amount, though, the rest of the withdrawal may be fully taxable and subject to a 10% IRS early withdrawal penalty as well.2,3

Withdrawals don’t affect taxation of Social Security benefits. If your total taxable income exceeds a certain threshold – $25,000 for single filers, $32,000 for joint filers – then your Social Security benefits may be taxed. An RMD from a traditional IRA represents taxable income, and may push retirees over the threshold – but a qualified distribution from a Roth IRA isn’t taxable income and doesn’t count toward it.4

You can direct Roth IRA assets into many different kinds of investments. Invest them as aggressively or as conservatively as you wish – but remember to practice diversification.

Inheriting a Roth IRA means you don’t pay taxes on distributions. While you will need to take distributions from an inherited Roth IRA within 5 years of the original owner’s passing, those distributions won’t be taxed as long as the IRA is at least five years old (five tax years, that is).3

You have nearly 16 months to make a Roth IRA contribution for a given tax year. Roth and traditional IRA contributions for a tax year that has passed may be made up until the federal tax deadline of the succeeding year. The deadline for a 2017 Roth IRA contribution is April 17, 2018. Making your Roth IRA contribution as soon as a tax year begins, however, gives that money more time to potentially grow and compound with tax deferral.5

How much can you contribute to a Roth IRA annually? The 2018 contribution limit is $5,500, with an additional $1,000 “catch-up” contribution allowed for those 50 and older. (That $5,500 limit applies across all your IRAs, incidentally, should you happen to own more than one.)5

You can keep making annual Roth IRA contributions all your life. You can’t make annual contributions to a traditional IRA once you reach age 70½.1

Does a Roth IRA have any drawbacks? Actually, yes. One, you will generally be hit with a 10% penalty by the IRS if you withdraw Roth IRA funds before age 59½ or you haven’t owned the IRA for at least five years. (This is in addition to the regular income tax you will pay on any Roth IRA earnings withdrawn prior to age 59½, of course.) Two, you can’t deduct Roth IRA contributions on your 1040 form as you can do with contributions to a traditional IRA or the typical workplace retirement plan. Three, you might not be able to contribute to a Roth IRA as a consequence of your filing status and income; if you earn a great deal of money, you may be able to make only a partial contribution or none at all.1,3

These asterisks aside, a Roth IRA has remarkable potential as a retirement savings vehicle. Now that you have read about all of a Roth IRA’s possible advantages, you may want to open up a Roth IRA or create one from existing traditional IRA assets. A chat with the financial professional you know and trust will help you evaluate whether a Roth IRA is right for you, given your particular tax situation and retirement horizon.

Michael Moffitt may be reached at ph#641-782-5577 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.

Michael Moffitt is a Registered Representative with and Securities are offered through LPL Financial, Member FINRA/SIPC. Investments advice offered through Advantage Investment Management (AIM), a registered investment advisor. Cornerstone Financial Group and AIM are separate entities from LPL Financial.

Citations.

1 – forbes.com/sites/jamiehopkins/2017/12/21/4-reasons-to-start-using-a-roth-ira-in-2018/ [12/21/17]

2 – tinyurl.com/ydevpofd [12/18/17]

3 – hrblock.com/get-answers/taxes/taxes-and-penalties/early-withdrawal-penalties-10768 [12/22/17]

4 – investopedia.com/ask/answers/013015/how-can-i-avoid-paying-taxes-my-social-security-income.asp [6/29/17]

5 – tickertape.tdameritrade.com/retirement/2017/12/financial-start-new-year-81999 [12/13/17]

Ways to Possibly Produce More Retirement Income

Your income determines your level of financial comfort in retirement more than any other factor. Some mid-life financial moves may help to boost it.

One important move is to max out retirement accounts. Yearly contributions of $5,500 to an IRA starting at age 45 will grow to $214,460 by age 65 at a 6% annual return. At an 8% annual return, that becomes $271,826. (This does not even take catch-up contributions into account.) You can also delay retiring. At an 8% annual return, annual investments of $10,000 in the typical tax-deferred employee retirement plan will grow to $35,061 in just three years, and $63,359 in five years. You can also strategize when to claim Social Security and transform non-earning assets (such as your home, collectibles, and vehicles) into income-producing assets. If you are “house rich and cash poor,” consider the potential of downsizing: $300,000 in freed home equity invested at a 7% yearly return could produce $21,000 in annual income. Some retirees arrange sale-leaseback agreements with their adult children: they sell their home to their kids, then rent it back. The retirees stay in their home and get a little more cash to spend, while the younger, higher-earning generation makes the most of homeowner tax breaks.*,1,2

*These are hypothetical examples and is not representative of any specific situation. Your results will vary. The hypothetical rates of return used do not reflect the deduction of fees and charges inherent to investing.

Mike Moffitt may be reached at Ph# 641-782-5577 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.

Michael Moffitt is a Registered Representative with and Securities are offered through LPL Financial, Member FINRA/SIPC. Investments advice offered through Advantage Investment Management (AIM), a registered investment advisor. Cornerstone Financial Group and AIM are separate entities from LPL Financial.    

CITATIONS.

1 – fool.com/retirement/2017/10/22/5-proven-ways-to-boost-your-retirement-income.aspx [10/22/17]

2 – financialmentor.com/wp-content/uploads/catch-up-late-start.pdf [12/17/16]

 

Congress Passes the Tax Cuts & Jobs Act

What will the near-term impact be?

On December 20, Congress passed the Tax Cuts & Jobs Act, sending the final version of the GOP tax reform bill to President Trump’s desk. The legislation alters the Internal Revenue Code to a degree unseen since the 1980s, altering income tax brackets, marginal tax rates, key deductions and exemptions, and the taxation of corporations and pass-through businesses. These are just some of the adjustments.1

How many taxpayers could benefit from all this reform in 2018? Earlier this month, the financial website Business Insider ran some numbers to see how single, childless taxpayers earning $25,000, $75,000, and $175,000 a year would fare in the wake of the reforms. It did so for both the House and Senate versions of the bill. The final Tax Cuts & Jobs Act is based on the Senate version, and under the Senate tax plan, Business Insider projected 2018 tax savings of $369 for a childless taxpayer at the $25,000 level, $2,129 at the $75,000 level, and $5,240 at the $175,000 level. The calculations assumed these taxpayers would use the standard deduction in 2018, rather than itemize.2

Using the same three income levels, and again assuming use of the enlarged standard deduction, it also projected 2018 federal income tax savings for families of four with children no older than 16. With the Senate bill as the model, the projected 2018 tax savings were $100 for such a family at the $25,000 level, $2,244 at the $75,000 level, and $3,095 at the $175,000 level.3

Retirees are also poised to receive significant tax savings. The non-partisan Tax Policy Center projects an average tax savings of $1,000 for older Americans when they file their 2018 federal taxes in 2019. For seniors earning between $33,000-$56,000, the TPC forecasts a federal tax cut of around $300 (roughly 9%). Seniors earning less than $33,000 currently pay little or no federal income tax and would see little or no benefit from the changes.4

One interesting detail in the Tax Cuts & Jobs Act has merited little coverage. That is the application of the chained Consumer Price Index to the Internal Revenue Code – a move which affects inflation calculations. The chained CPI usually reflects less inflation than the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-U), upon which Social Security cost-of-living adjustments are based. This raises the possibility of smaller Social Security COLAs in the future. At this point, Social Security COLAs are not dependent on the movement of the chained CPI.5The passage of the reforms also opens a door to new conversations about Medicare, Medicaid, and Social Security reform, as the national debt is projected to increase by more than $1 trillion with the new legislation.4,5

Households may want to make some moves before the new rules take effect. As marginal tax rates are reduced for 2018, some taxpayers might want to defer a little income into next year. The charitably minded may end up contributing more to qualified non-profit organizations in 2017 than in 2018, as the value of itemized deductions will be greater this year with a lower standard deduction. Lastly, those who like to itemize may be compelled to prepay 2018 property taxes before this year ends, given the $10,000 cap on the state and local taxes deduction in 2018.6

The Internal Revenue Service has quite a challenge on its hands. Web pages, forms, and publications need to be revised and the agency faces immediate pressure to issue new withholding tables. On December 17, the I.R.S. stated that worker paychecks would not reflect the impact of the Tax Cuts & Jobs Act until February – which means employees may have to make late-2018 withholding adjustments.7

Tax season is almost here, so talk with your CPA or preparer soon. A conversation may reveal new opportunities for savings, and help you identify your tax planning priorities for the near future.

Mike Moffitt may be reached at Ph# 641-782-5577 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.

Michael Moffitt is a Registered Representative with and Securities are offered through LPL Financial, Member FINRA/SIPC. Investments advice offered through Advantage Investment Management (AIM), a registered investment advisor. Cornerstone Financial Group and AIM are separate entities from LPL Financial.

Citations.

1 – cbsnews.com/news/second-house-vote-new-tax-bill-2017-12-20-live-updates/ [12/20/17]

2 – businessinsider.com/trump-tax-plan-take-home-pay-2017-9 [12/2/17]

3 – businessinsider.com/senate-tax-plan-affects-family-take-home-pay-2017-11 [12/2/17]

4 – forbes.com/sites/howardgleckman/2017/12/15/what-the-gop-tax-cut-will-mean-for-older-adults/ [12/15/17]

5 – fool.com/retirement/2017/12/18/the-1-gop-tax-provision-social-security-recipients.aspx [12/18/17]

6 – cbsnews.com/news/3-moves-to-make-by-end-of-2017-if-gop-tax-bill-becomes-law/ [12/19/17]

7 – nytimes.com/2017/12/18/business/irs-tax-bill.html [12/18/17]

 

 

Year-End Charitable Gifting

What should you keep in mind as you donate?

Are you making charitable donations this holiday season? If so, you should know about some of the financial “fine print” involved, as the right moves could potentially bring more of a benefit to the charity and to you.

To deduct charitable donations, you must itemize them on I.R.S. Schedule A. So, you need to document each donation you make. Ideally, the charity uses a form it has on hand to provide you with proof of your contribution. If the charity does not have such a form handy (and some charities do not), then a receipt, a credit or debit card statement, a bank statement, or a cancelled check will have to suffice. The I.R.S. needs to know three things: the name of the charity, the gifted amount, and the date of your gift.1

From a tax planning standpoint, itemized deductions are only worthwhile when they exceed the standard income tax deduction. The 2017 standard deduction for a single filer is $6,350. If you file as a head of household, your standard deduction is $9,350. Joint filers and surviving spouses have a 2017 standard deduction of $12,700. (All these amounts rise in 2018.)2

Make sure your gift goes to a qualified charity with 501(c)(3) non-profit status. Also, visit CharityNavigator.org, CharityWatch.org, or GiveWell.org to evaluate a charity and learn how effectively it utilizes donations. If you are considering a large donation, ask the charity involved how it will use your gift.

If you donated money this year to a crowdsourcing campaign organized by a 501(c)(3) charity, the donation should be tax deductible. If you donated to a crowdsourcing campaign that was created by an individual or a group lacking 501(c)(3) status, the donation is not deductible.3

How can you make your gifts have more impact? You may find a way to do this immediately, thanks to your employer. Some companies match charitable contributions made by their employees. This opportunity is too often overlooked.

Thoughtful estate planning may also help your gifts go further. A charitable remainder trust or a contract between you and a charity could allow you to give away an asset to a 501(c)(3) organization while retaining a lifetime interest. You could also support a charity with a gift of life insurance. Or, you could simply leave cash or appreciated property to a non-profit organization as a final contribution in your will.1

Many charities welcome non-cash donations. In fact, donating an appreciated asset can be a tax-savvy move.

 You may wish to explore a gift of highly appreciated securities. If you are in a higher income tax bracket, selling securities you have owned for more than a year can lead to capital gains taxes. Instead, you or a financial professional can write a letter of instruction to a bank or brokerage authorizing a transfer of shares to a charity. This transfer can accomplish three things: you can avoid paying the capital gains tax you would normally pay upon selling the shares, you can take a current-year tax deduction for their full fair market value, and the charity gets the full value of the shares, not their after-tax net value.4

You could make a charitable IRA gift. If you are wealthy and view the annual Required Minimum Distribution (RMD) from your traditional IRA as a bother, think about a qualified charitable distribution (QCD) from your IRA. Traditional IRA owners age 70½ and older can arrange direct transfers of up to $100,000 from an IRA to a qualified charity. (Married couples have a yearly limit of $200,000.) The gift can satisfy some or all of your RMD; the amount gifted is excluded from your adjusted gross income for the year. (You can also make a qualified charity a sole beneficiary of an IRA, should you wish.)4,5

Do you have an unneeded life insurance policy? If you make an irrevocable gift of that policy to a qualified charity, you can get a current-year income tax deduction. If you keep paying the policy premiums, each payment becomes a deductible charitable donation. (Deduction limits can apply.) If you pay premiums for at least three years after the gift, that could reduce the size of your taxable estate. The death benefit will be out of your taxable estate in any case.6

Should you donate a vehicle to charity? This can be worthwhile, but you probably will not get fair market value for the donation; if that bothers you, you could always try to sell the vehicle at fair market value yourself and gift the cash. As organizations that coordinate these gifts are notorious for taking big cuts, you may want to think twice about this idea.7

You may also want to make cash gifts to individuals before the end of the year. In 2017, any taxpayer may gift up to $14,000 in cash to as many individuals as desired. If you have two grandkids, you can give them each up to $14,000 this year. (You can also make individual gifts through 529 education savings plans.) At this moment, every taxpayer can gift up to $5.49 million during his or her lifetime without triggering the federal estate and gift tax exemption.8

Be sure to give wisely, with input from a tax or financial professional, as 2017 ends.

Mike Moffitt may be reached at ph# 641-782-5577 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.

Michael Moffitt is a Registered Representative with and Securities are offered through LPL Financial, Member FINRA/SIPC. Investments advice offered through Advantage Investment Management (AIM), a registered investment advisor. Cornerstone Financial Group and AIM are separate entities from LPL Financial.

Citations.

1 – tinyurl.com/y8dkleed [8/23/17]

2 – forbes.com/sites/kellyphillipserb/2017/10/19/irs-announces-2018-tax-brackets-standard-deduction-amounts-and-more/ [10/19/17]

3 – legalzoom.com/articles/cash-and-kickstarter-the-tax-implications-of-crowd-funding [3/17]

4 – irs.gov/retirement-plans/retirement-plans-faqs-regarding-iras-distributions-withdrawals [8/17/17]

5 – pe.com/2017/11/04/its-not-that-hard-to-give-cash-or-stock-to-charity/ [11/4/17]

6 – kiplinger.com/article/taxes/T021-C032-S014-gifting-a-life-insurance-policy-to-a-charity.html [11/17]

7 – foxbusiness.com/features/2017/10/18/edmunds-what-to-know-about-donating-your-car-to-charity.html [10/18/17]

8 – law.com/thelegalintelligencer/sites/thelegalintelligencer/2017/11/02/with-2018-fast-approaching-its-time-for-some-year-end-tax-planning-tips [11/2/17]

Now 64? Prepare to Sign up for Medicare.

This is the time to arrange lifelong health coverage. 

Age 64 is the age when you are reminded that you are a baby boomer growing older. Regardless of how young or old you feel at 64, you should make sure to sign up for Medicare.

The sign-up period will be here before you know it. In fact, you might already be within it, so act quickly if you are. Medicare gives you a 7-month window in which to enroll. That initial enrollment window opens three months prior to the month in which you turn 65 and closes three months after the month in which you turn 65.1

If you fail to enroll within that 7-month period, the chances are good that you will end up paying a late-enrollment penalty for not signing up for Part B coverage on time. That penalty is permanent. You will also have to wait until the next general enrollment period (January 1-March 31) to sign up.1,2

Are you already receiving Social Security retirement benefits? Have you received them for 24 straight months at any point? If your answer to either of those two questions is “yes,” then you will be enrolled in Medicare Part A and B, automatically. You will get your Medicare card in the mail about three months prior to turning 65.2

Are you currently covered under an employer or former employer’s health plan? If so, you may qualify for a special enrollment period. On the other hand, you may not.

The rules are complex here. If you are approaching your 65th birthday, your employer (or your health plan administrator) may require you to enroll in Medicare at the first opportunity. Not all companies demand this. If yours does not, then you can sign up for Medicare coverage later, without being hit with late-enrollment penalties.2

If you are still working at 65 and have employer-sponsored health coverage, you face no requirement to sign up for Medicare until you retire or that coverage disappears. (This also applies if you are retired, but your spouse has employer-sponsored health coverage.)2

The month after your employment ends or your employee health benefits linked to that employment end (whichever comes first), an 8-month enrollment period will open for you to enroll in Medicare.2

By the way, COBRA does not meet Medicare’s definition of employer-sponsored health insurance. Neither does a health plan sponsored by one of your past employers. You will be allowed no special enrollment period under these coverage circumstances.2

You will need to decide what types of coverage you prefer. Parts A and B are the basic parts of Medicare. (Sometimes they are simply referred to as “Original Medicare.”) Part A is hospital insurance, and Part B is medical insurance.

Most people pay nothing for Part A; effectively, they have prepaid for the coverage by paying Medicare taxes during years on the job. Every Medicare recipient pays a monthly Part B premium. At this writing, the Part B premium for most Medicare recipients is $134. Should you still be working, this may be all the coverage you need if your employer offers health benefits.1

You may want more coverage than Parts A and B provide. You might be interested in a Medicare Supplement Insurance (Medigap) policy or a Part D plan to help you pay for medicines. Or, you could sign up for a Part C (Medicare Advantage) plan, offering all basic Medicare benefits, plus prescription drug and medical coverage.3

Contact a Medicare specialist before you enroll. Even with its user-friendly website and plenty of online third-party guides to help those new to it, Medicare remains intricate; its nuances, hard to grasp. A financial or insurance professional well versed in Medicare enrollment, benefits, and regulations may make the process simpler for you.

Mike Moffitt may be reached at ph# 641-782-5577 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.

Michael Moffitt is a Registered Representative with and Securities are offered through LPL Financial, Member FINRA/SIPC. Investments advice offered through Advantage Investment Management (AIM), a registered investment advisor. Cornerstone Financial Group and AIM are separate entities from LPL Financial.

Citations.

1 – medicare.gov/people-like-me/new-to-medicare/getting-started-with-medicare.html [11/20/17]

2 – fool.com/retirement/general/2016/05/14/do-i-get-medicare-when-i-turn-65.aspx [5/14/17]

3 – kiplinger.com/slideshow/retirement/T039-S001-10-things-you-must-know-about-medicare/index.html [5/17]

 

Examining the 2018 Social Security COLA

It will help retirees out, but it will not help them get ahead.

Seniors got a little good news this fall. Next year, monthly Social Security income payments to retirees will increase by 2.0%. That will mean an extra $326 – roughly $27.40 a month – for the average Social Security recipient in 2018.1

This is the largest cost-of-living adjustment (COLA) to Social Security benefits since 2012. In that year, retirees received 3.6% more in benefits than they had in 2011.2

Unfortunately, the 2.0% increase may not make much of a difference. After all, the COLA does not constitute a gain on inflation, but merely a response to it.

The Senior Citizens League, an advocacy group for retirees, thinks that rising Medicare premiums could absorb the 2.0% COLA for 70% of Social Security beneficiaries. Whether that happens or not, some analysts think retirees deserve larger Social Security COLAs than the ones they receive.2

The COLAs have constantly fallen short of rising housing costs and medical costs. In fact, yearly health care inflation exceeded annual Social Security COLAs in 33 of the 35 years ending in 2016.3

Should the method for figuring the annual COLA be changed? Perhaps it should be, as other metrics can be used.

When the federal government figures out annual COLAs for Social Security, it references the annualized advance in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). Critics argue that the CPI-W is the wrong benchmark. They feel COLAs should be calculated using the Consumer Price Index for the Elderly (CPI-E). The CPI-E only tracks spending for households headed by those aged 62 or older.3

Back in 2011, the Bureau of Labor Statistics scrutinized both the CPI-W and CPI-E. It determined that the CPI-E gave greater weight to rent and mortgage expenses and health care costs, but slightly less weight to education, food, entertainment, clothing, and transportation expenses. The CPI-E may, therefore, be a better measure of senior expenses – and if it is ever used as a yardstick to measure Social Security COLAs, those COLAs might be larger.3

Given all this, why does the federal government keep using the CPI-W to figure out COLAs? The CPI-E, it turns out, has flaws of its own. It does not include any Medicare Part A expenses, and the larger COLAs it would potentially generate for retirees would also help to speed the drawdown of Social Security’s coffers.3

A 2.0% raise may not be much, but it beats what happened in 2016 and 2017. The 2017 COLA was only 0.3%, and retirees went without any COLA the year before.2

Mike Moffitt may be reached at ph# 641-782-5577 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.       

Michael Moffitt is a Registered Representative with and Securities are offered through LPL Financial, Member FINRA/SIPC. Investments advice offered through Advantage Investment Management (AIM), a registered investment advisor. Cornerstone Financial Group and AIM are separate entities from LPL Financial.

Citations.

1 – marketwatch.com/story/social-security-checks-expected-to-increase-2-in-2018-2017-10-13/ [10/13/17]

2 – cnbc.com/2017/10/13/medicare-premiums-may-devour-increased-2018-social-security-benefit.html [10/13/17]

3 – fool.com/retirement/2017/08/05/social-security-benefits-are-expected-to-increase.aspx [8/5/17]

Happy Thanksgiving!

Thanksgiving gives us all a chance to reflect on the people we know, the things we have, and the great experiences and richness life brings. Taking time out of our busy lives to remember the good things is important.  This holiday, so synonymous with gratitude, is the perfect time to count our blessings.

Reflect on your present blessings, of which every many has many,                                    Not on your past misfortunes, of which all men have some.

-Charles Dickens

We wish you and your family have a happy Thanksgiving Day!

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

Website: www.cfgiowa.com

Michael Moffitt is a Registered Representative with and Securities are offered through LPL Financial, Member FINRA/SIPC. Investments advice offered through Advantage Investment Management (AIM), a registered investment advisor. Cornerstone Financial Group and AIM are separate entities from LPL Financial.

    

Crowdfunding & Taxes

Information for those giving, receiving, and organizing.

Have you donated money to a crowdfunding campaign this year? You probably have. You may be wondering how the Internal Revenue Service treats these donations. Do the common tax rules apply?

 The I.R.S. may or may not define such donations as charitable contributions. It depends not only on who the crowdfunding is for, but also who has organized the campaign.

A donation to a qualified non-profit organization – a 501(c)(3) – is tax deductible if it is properly documented and itemized on Schedule A. Donations to crowdsourcing efforts administered by 501(c)(3)s are, likewise, tax deductible.1

If an individual sets up a crowdfunding campaign to raise money for another individual or a cause or project, it is highly unlikely that a 501(c)(3) organization is in place to accept the donations. (An organization can attain such status faster these days, thanks to the Internet, but attaining it still takes time.)

So, if you donate to a crowdfunding campaign that is simply created by a person to benefit a specific person or a group of specific persons, the donation will likely not be tax deductible, as no qualified charitable organization will be there to receive and distribute the money.1

There is a “middle ground” here that warrants further explanation. Sometimes you see a crowdsourcing effort created by an individual on behalf of what is termed a “charitable class.” These campaigns do not simply benefit one or more people that the organizer already knows. Rather, they benefit a community of people (perhaps, many people) that the organizer does not know.

If you give to such an effort, an income tax deduction may be possible if the campaign aligns with a qualified charity. If the qualified non-profit organization assumes full control over the collected donations and takes full possession of them, then a charitable deduction by the donor may be permitted.2

When donations are taken on behalf of a charitable class, they do not necessarily become present interest gifts. Still, a gift tax charitable contribution deduction may not be allowed.2

If you receive crowdsourcing contributions, are they characterized as gifts? Usually, they are considered gifts under federal tax law and not counted in your gross income – but there are some exceptions to this.2

If a donation you receive constitutes a loan, or if a donation is made to you with what the I.R.S. calls “detached and disinterested generosity,” then such a donation represents taxable income. The same holds true if crowdfunding donations amount to venture capital, payment for services rendered, or a percentage of gain from the sale of property.2

Some creators of crowdfunding campaigns may receive 1099-Ks. This is the federal tax form used to report payment card and third-party network transactions, and like all 1099 forms, it goes out within the first few weeks of a calendar year. If your campaign generates at least 200 transactions or $20,000 or more in gross payments during a single year, the crowdfunding site or the payment processing company it uses will send you one.1

The I.R.S. has not made formal rulings on crowdsourcing. Perhaps some will be made soon, if only to clarify some of the gray areas that now exist.

Mike Moffitt may be reached at 641-782-5577 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.

Michael Moffitt is a Registered Representative with and Securities are offered through LPL Financial, Member FINRA/SIPC. Investments advice offered through Advantage Investment Management (AIM), a registered investment advisor. Cornerstone Financial Group and AIM are separate entities from LPL Financial.   

Citations.

1 – legalzoom.com/articles/cash-and-kickstarter-the-tax-implications-of-crowd-funding [3/17]

2 – wealthmanagement.com/philanthropy/crowdsourcing-tax-confusion [10/20/17]

 

Finding Cheaper Flights

Ways to fly for less this season and any season.

What are the keys to landing inexpensive airfares? One, be flexible. Two, secure those seats now rather than later.

Locating cheaper airfares can be done through a variety of means. Try excellent search engines like Momondo (which canvasses more than 30 carriers and travel websites), Priceline, and Google Flights. Many travel websites will let you set price alerts so that you can be quickly notified when a carrier drops a fare into the “sweet spot” you want. (Fares really can rise and fall daily.) Book your airfare at least 30 days before you fly, and consider flights with connections rather than non-stops. Fly during the middle of the week – or if life permits, on an actual holiday. Go with the discount carriers – JetBlue, Southwest Airlines, or Alaska Airlines if you are flying domestically, or Norwegian, if traveling to Europe. Additionally, awards miles and credits accumulated on travel credit cards could lower the cost of your trip. Also, if you book a flight directly through a carrier via an airline rewards card, you can usually waive a baggage fee for at least one flyer.3  

Mike Moffitt may be reached at Ph# 641-782-5577 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.

Michael Moffitt is a Registered Representative with and Securities are offered through LPL Financial, Member FINRA/SIPC. Investments advice offered through Advantage Investment Management (AIM), a registered investment advisor. Cornerstone Financial Group and AIM are separate entities from LPL Financial.   

Citations.

3 – forbes.com/sites/johnnyjet/2017/10/06/10-tips-for-booking-cheaper-flights/ [10/6/17]

Your Social Security Benefits & Your Provisional Income

Earning too much may cause portions of your retirement benefits to be taxed. 

You may be shocked to learn that part of your Social Security income could be taxed. If your provisional income exceeds a certain level, that will happen.

Just what is “provisional income”? The Social Security Administration defines it with a formula.

Provisional income = your modified adjusted gross income + 50% of your total annual Social Security benefits + 100% of tax-exempt interest that your investments generate.1

Income from working, pension income, withdrawals of money from IRAs and other types of retirement plans, and interest earned by certain kinds of fixed-income investment vehicles all figure into this formula.

If you fail to manage your provisional income in retirement, it may top the threshold at which Social Security benefits become taxable. This could drastically affect the amount of spending power you have, and it could force you to withdraw more money than you expect in order to cover taxes.

Where is the provisional income threshold set? The answer to that question depends on your filing status.

If you file your federal income taxes as an individual, then up to 50% of your annual Social Security benefits are subject to taxation once your provisional income surpasses $25,000. Once it exceeds $34,000, as much as 85% of your benefits are exposed to taxation.1,2

The thresholds are set higher for joint filers. If you file jointly, as much as 50% of your Social Security benefits may be taxed when your provisional income rises above $32,000. Above $44,000, up to 85% of your Social Security benefits become taxable.2

The provisional income thresholds have never been adjusted for inflation. Since Social Security needs more money flowing into its coffers rather than less, it is doubtful they will be reset anytime in the future.

When the thresholds were put into place in 1983, just 10% of Social Security recipients had their retirement benefits taxed. By 2015, that had climbed to more than 50%.2

In 2017, the Seniors Center, a nonprofit senior advocacy organization based in Washington, D.C., asked retirees how they felt about their Social Security benefits being taxed. Ninety-one percent felt the practice should end.2

How can you plan to avoid hitting the provisional income thresholds? First, be wary of potential jumps in income, such as the kind that might result from selling a lot of stock, converting a traditional IRA to a Roth IRA, or taking a large lump-sum payout from a retirement account. Second, you could plan to reduce or shelter the amount of income that your investments return. Three, you could try to accelerate income into one tax year or push it off into another tax year.

Consult with a financial professional to explore strategies that might help you reduce your provisional income. You may have more options for doing so than you think.

Mike Moffitt may be reached at Ph# 641-782-5577 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.

Michael Moffitt is a Registered Representative with and Securities are offered through LPL Financial, Member FINRA/SIPC. Investments advice offered through Advantage Investment Management (AIM), a registered investment advisor. Cornerstone Financial Group and AIM are separate entities from LPL Financial.

Citations.

1 – kiplinger.com/article/retirement/T051-C032-S014-can-you-cut-taxes-you-pay-on-your-social-security.html [9/13/17]

2 – fool.com/retirement/2017/03/26/91-of-seniors-believe-this-social-security-practic.aspx [3/26/17]