Call 713-840-1000 / 800-960-1200

Press Room: Financial & Estate Planning

Taxing Your Portfolio

ARE YOU PAYING “STEALTH” TAX on YOUR INVESTMENTS?

Q:  2016 was a pretty good year for most investors. Now it’s time to settle up with Uncle Sam, right?

A: Yes, but most investors are over-paying their income tax because their advisors are not managing their assets in a tax friendly way. According to the Schwab Center for Financial Research, minimizing taxes falls directly behind investment selection and asset allocation in the list of the most important determinants of investment success. What we’ve learned in our 45 years of talking to families is that most families and their investment professionals do not manage their investment portfolio with tax impact anywhere on the radar screen. The result is that their clients end up paying “stealth” taxes – more than they need to be paying.

Read the Full Post

Turkey, Football and Year-End Planning

Financial markets have had their ups and downs this year centered on events that are largely outside of any one person’s control. Examples include the U.S. presidential election, the U.K.’s vote to leave the European Union (“Brexit”), as well as the potential for the Federal Reserve to raise interest rates. As year-end draws nearer, we wanted to take a step back from the news headlines and focus attention on those planning opportunities that are much more within our control… some food for thought if you will ahead of the Thanksgiving holiday.

If you have taxable investment accounts managed by L&W, we will be sending our Tax Planning Estimates Report to clients around December 1st. However, you do not have to wait… Using the link below, you can access portfolio related information in addition to the investment reports we send each quarter. Given the nature of this particular article, I’ll specifically mention three reports that are available through the portal under the “Reports” heading: 1) Income & Expenses, 2) Projected Income, and 3) Realized Gains/Losses. All three of these reports can be used for tax planning purposes ahead of year-end. Click the following link and take a few minutes to explore your Client Portal.

Have you contributed to your employer retirement plans, IRAs, and Roth IRAs?

Contribute the maximum amount to a retirement plan you are eligible and able to make. Be sure to make catch-up contributions if you are age 50 or older. Also, if you have children with earned income, they should consider contributing to an IRA or Roth IRA to get a head start on saving. (A $5,000 contribution to an IRA that earns 8 percent for an 18-year-old will be worth $186,000 at age 65. The same contribution made at age 25 will only be worth $108,000 at age 65. They’ll thank you later!)

Are you getting the most out of your 401(k)?

We often encounter 401(k) and 403(b) accounts that have not been reviewed in quite some time. Investment options in these accounts change; as do markets, fund managers and risks. Click here to continue reading Getting the Most Out of Your 401(k).

Have you spent all of the funds in your flexible spending account (FSA)?

Any funds remaining in your FSA could be lost if not spent on qualified expenses before year-end.

Did you take your required minimum distributions (RMDs)?

Once you reach age 70½, you are generally required to start taking RMDs from traditional IRAs and employer sponsored retirement plans by year-end. RMDs are also required for non-spousal inherited IRAs (including inherited Roth IRAs).

Are there charitable gifts you would like to make before year-end?

Cash gifts are simple, but there are other strategies that may further maximize your tax benefits, including gifts of appreciated securities, Donor Advised Funds (DAFs) or Qualified Charitable Distributions (QCDs) for IRA owners age 70 ½ and older. Click here to continue reading more about Charitable Planning Strategies.

Are there annual exclusion gifts you would like to make before year-end?

You can gift up to $14,000 ($28,000 per married couple) to as many individuals as you want without incurring federal gift tax or utilizing a portion of your gift tax exemption. Keep in mind that gifts to 529 plans or trusts holding life insurance may utilize all or a portion of your exclusion in a given year.

Have you considered important thresholds when planning for income taxes?

There may still be opportunities to plan around income tax thresholds that could result in higher taxes. This might include the relatively new 3.8 percent Medicare surtax, phase outs for itemized deductions, and higher tax rates for long-term capital gains and qualified dividends. Planning for trust distributions is especially important as the various thresholds come into play much sooner than they do for individuals. Often, distributing some income earned by a trust to the beneficiaries can avoid imposition of this surtax.

Have you withheld enough to avoid underpayment penalties for federal income taxes?

Check your federal income tax withholding and estimated quarterly income tax payments to verify you won’t be subject to underpayment penalties for 2016. The IRS safe harbor rules require that individuals pay in at least 90 percent of their current year income tax liability or 100 percent (110 percent above certain income levels) of their prior year liability.

Should you pay property taxes before year-end or wait until early 2017?

For income tax purposes, sometimes it may be beneficial to “double-up” and pay two years’ worth of property taxes in a single year. If your annual Itemized Deductions are only moderately higher than the Standard Deduction, there is a good chance this doubling up strategy could benefit you. Don’t forget to watch out for the alternative minimum tax (AMT).

Are there opportunities for harvesting losses or gains in your portfolio?

Harvesting investment losses can be an effective tax savings strategy, especially when you can offset short-term capital gains that would be otherwise taxed at higher rates.

Are you considering participating in your employer’s deferred compensation plan?

When it comes to making decisions about deferring compensation, your options are numerous, essential to your financial security, complicated, and often irrevocable. Click here to read more about Deferred Compensation.

Have you ever considered the use of a Family Limited Partnership?

The IRS has issued proposed regulations that could eliminate valuation discounts for family limited partnerships (FLPs). This change could occur close to year-end or shortly after the new year. With the maximum gift and estate tax rate currently set at 40 percent, valuation discounts have been a very useful tool for those individuals with a taxable estate. Current exemption amounts are $5,450,000 per person or $10.9 million for a married couple. Visit with your estate planning attorney or Wealth Advisor if you’d like to learn more about planning opportunities and the proposed regulations.

We encourage your feedback and don’t hesitate to contact your Wealth Advisor if you have any questions. Have a great Thanksgiving and Holiday Season!

Refinancing: Your Personal “Economic Stimulus” Package?

Refinancing:
Your Personal “Economic Stimulus” Package?

In our 40+ years as wealth advisors, we’ve heard the question many times. Should I refinance? The reasons vary, but it typically comes down to saving more or getting out of debt sooner. Either way, our clients envision a better lifestyle and less stress as more cash becomes available for important goals like retirement funding, college savings for children, or living debt free. Of course, it can also be as simple as our clients spending some newfound cash on the things they enjoy. Your reason might be something different still. Whatever the reason, the extra cash is a pleasant shutterstock_14174845surprise.

So, is it really worth the trouble? Typically, the monthly savings as a result of refinancing is a few hundred dollars. That doesn’t sound like much, but compounded over many years, the savings can really add up. A simple example may help. Imagine refinancing a $300,000, 30-year mortgage and lowering the interest rate from 4.5 percent to 3.5 percent. The savings is about $173 per month. Invest that savings and you could grow your investments to about $250,000 over 30-years. The mortgage is paid off and you have an extra account that’s almost as large as the original mortgage itself. Not too bad!

Read the Full Post

Paychecks that Keep on Going

Paychecks that Keep on Going

A frequent topic of conversation at meetings of the Linscomb & Williams Investment Committee: The change we have seen during our 45 years in how clients plan for the transition in giving up a regular paycheck at retirement. The biggest change?  Today, very few people can count on a company pension to help replace their paycheck when they retire.

Data from the Pension Benefit Guaranty Corp (PBGC) confirms this. When we founded L&W in 1971, these were the statistics for private sector workers:

  • 4 workers out of 10 started their retirement entitled to a monthly pension from their company. This was an attractive addition to their Social Security income.
  • Hardly anyone had a 401k-type account. As late as 1980, less than 1 in 10 workers had a 401k account.

Today, only 1 worker in 7 has a pension from their company when they retire. 401k-type plans or other Defined Contribution plans, such as 403(b)s, are clearly predominant, covering 1 of every 2 workers in the private sector. Retirement cash flow planning for today’s retirees is clearly different. They are not living their parent’s retirement.

What today’s retirees need is a retirement “paycheck.” Imagine having a predictable cash flow throughout retirement to supplement Social Security. And imagine a retirement paycheck that, like your working-years paycheck, could keep pace with or even out-pace inflation. That starts to paint a retirement picture with much more security and peace of mind. Is it realistic to create a retirement “paycheck” like this?

Read the Full Post

High Anxiety Over Finances? Get a Plan!

Every American Needs a Long-term Financial Plan

Plato said, “Nothing in the affairs of men is worthy of great anxiety.” Plato must have had a sound financial plan or at least a competent Wealth Manager. In America, contrary to Plato’s advice, we are a nation of worriers. If you are a psycho-therapy professional, perhaps that is encouraging news. But for the rest of us, that is bad news. One of the top things Americans worry about is their personal finances and financial security.Financial-Anxiety-300x200

On a periodic basis, Northwestern Mutual Life Insurance Company (NML) in Milwaukee commissions a comprehensive survey by the Harris Organization to find out what is on peoples’ minds regarding personal finance and financial security. The survey’s most recent version is entitled “2016 Planning and Progress Study” and was concluded in February of 2016. As surveys go, it is statistically rigorous, covering more than 2,500 U.S. households, ages 18 and older. It is weighted to be representative of the entire U.S. adult population as to gender, age, education, race, region and household income. It surveys to discover U.S. adults’ attitudes and behaviors about money, financial decision making, and the broader issues around long-term financial security. We reviewed the study and its conclusions in a recent Linscomb & Williams Wealth Planning Committee discussion among our professionals.

Read the Full Post

The High Cost of the College Investment

high-cost-of-college-investment
Second to purchasing the family residence, the financial support parents provide to children attending college is the largest financial expenditure made by most families.  It is no secret that education costs have risen faster than the general rate of inflation for almost two decades.  This is true for both private and state supported institutions of higher education.   Costs for state-supported 4-year institutions average $17,500 per year while private universities run approximately $35,000 per year, according to the latest data from the U.S. Department of Education.  Elite institutions are much higher.

Read the Full Post Here

The Weekly Business Hour with Rick Schissler on Lone Star Internet Radio

J. Harold Williams, President and CEO of Linscomb & Williams, was the featured guest of interviewer Rick Schissler on the January 18th episode of The Weekly Business Hour. The live interview was broadcast on Lone Star Radio, Montgomery County’s Community Radio Station.

Harold discusses building a long-term business and expanding that business into new markets. Linscomb & Williams was selected as one of the 2015 Forbes Magazine Top 100 Wealth Managers.

Harold Williams, President/CEO of Linscomb & Williams joins us today to talk about building a long-term business and expanding that business into new markets. Linscomb & Williams was selected as one of the 2015 Forbes Magazine Top 100 Wealth Managers. “Tips You Can Use” touches on Upgrading Your Technology, how to improve your Google Search and “Where Easy Money Has Helped and Hurt.” The Silver Fox Advisor Tip of the Week, “Why You Need a Mentor.”

Prevent the “Humbug” When Planning for Year-End

As usual, year-end feels like it’s closing in all too fast and the joys and pressures of the holiday season will soon be in full swing, but don’t stress, you still have time to make meaningful decisions that can positively impact your finances for 2015.

While not always possible, we recommend completing year-end planning items by early December, especially if you intend to make personal or charitable gifts from your portfolio. There is always a risk that planning items will not get completed if the request is made in the last few weeks. The sooner you can get started, the better!

In no particular order, the following is a list of year-end planning items. This list is certainly not all-inclusive, but hopefully it helps to remind you of a few planning opportunities to consider. Please give us your feedback, and don’t hesitate to contact your Wealth Advisor if you have any questions.

Have you contributed to your employer retirement plans IRAs, and Roth IRAs?

Contribute the maximum amount to a retirement plan you are eligible and able to make. Be sure to make catch-up contributions if you are age 50 or older. Also, if you have children with earned income, they should consider contributing to an IRA or Roth IRA to get a head start on saving.

Are you getting the most out of your 401(k)?

We often encounter 401(k) and 403(b) accounts that have not been reviewed in quite some time. Investment options in these accounts change; as do markets, fund managers and risks. Click here to continue reading Getting the Most Out of Your 401(k).

Have you spent all of the funds in your flexible spending account (FSA)?

Any funds remaining in your FSA could be lost if not spent on qualified expenses before year-end.

Did you take your required minimum distributions (RMDs)?

Once you reach age 70½, you are generally required to start taking RMDs from traditional IRAs and employer sponsored retirement plans by the end of the year–for most individuals.

Note: Absent new legislation from Congress, 2014 was the final year that permitted qualified charitable contributions (QCDs) from an IRA directly to a qualified charity if you were 70½ or older. We continue to monitor this space to see if Congress decides to revisit QCDs before the end of the year.

Are there charitable gifts you would like to make before year-end?

Cash gifts are simple, but gifts of appreciated securities might save more tax. Don’t forget to obtain a written acknowledgement from the charity to substantiate gifts above $250.

Have you considered the benefits of a donor advised fund (DAF) for larger charitable gifts?

A DAF can often simplify gifting, especially at year-end. Opening a DAF can take a little longer than a personal account, so the sooner you get started, the better.

Are there annual exclusion gifts you would like to make before year-end?

You can gift up to $14,000 (up to $28,000 per married couple) to as many individuals as you want without incurring federal gift tax or utilizing a portion of your gift tax exemption. Keep in mind that gifts to 529 plans or trusts holding life insurance may utilize all or a portion of your exclusion in a given year.

Have you considered important thresholds when planning for income taxes?

There may still be opportunities to plan around income tax thresholds that could result in higher taxes. This might include the relatively new 3.8% Medicare Surtax, phase outs for itemized deductions, and higher tax rates for long-term capital gains and qualified dividends. Planning for trust distributions is especially important as the various thresholds come into play much sooner than they do for individuals.

Have you withheld enough to avoid underpayment penalties for federal income taxes?

Check your federal income tax withholding and estimated quarterly income tax payments to verify you won’t be subject to underpayment penalties for 2015. The IRS safe harbor rules require that individuals pay in at least 90% of their current year income tax liability or 100% (110% above certain income levels) of their prior year liability.

Should you pay property taxes before year-end or wait until early 2016?

For income tax purposes, sometimes it may be beneficial to “double-up” and pay two years’ worth of property taxes in a single year. Don’t forget to watch out for the alternative minimum tax (AMT).

Are there opportunities for harvesting losses or gains in your portfolio?

Harvesting investment losses can be an effective tax savings strategy, especially when you can offset short-term capital gains that would be taxed at higher rates. Also consider whether 2015 is a good year to recognize capital gains in order to utilize any remaining tax-loss carry-forward.

Are you considering participating in your employers deferred compensation plan?

When it comes to making decisions about deferring compensation, your options are numerous, essential to your financial security, complicated, and often irrevocable. Click here to read more about Deferred Compensation.

Did you have an opportunity to read our “Ideas That May Improve Your Finances in 2015”?

If not, we encourage you to check it out. Click here to read Ideas to Improve Your Finances in 2015.

We encourage your feedback and don’t hesitate to contact your Wealth Advisor if you have any questions.

Are You Getting the Most Out of Your 401(k)?

Are You Getting the Most Out of Your 401(k)?

We often encounter 401(k) and 403(b) accounts that have not been reviewed in quite some time. Investment options in these accounts change; as do markets, fund managers and risks. Making sure your accounts are properly diversified with the right mix of investments, can help you achieve your goals.

Here are a few different ways that Linscomb & Williams can help:

Many clients have old “orphan” 401(k) or IRA accounts scattered in a number of places.  If you need help with some house cleaning, we can assist you by rolling over an old 401(k) or other retirement account into a Fidelity or Schwab IRA rollover managed by L&W. This will help you simplify your finances and stay on top of these retirement assets.

  • If the funds are coming from a 401(k), 403(b) or other employer sponsored plan, you will likely have to initiate the transfer through the current plan administrator, as they will not accept Fidelity’s or Schwab’s transfer request. As we’ve done for many clients, we can coordinate a conference call with the plan administrator to help facilitate the rollover.
  • For an old IRA or IRA rollover, we can prepare and submit the paperwork to initiate the rollover.

Alternatively, you may still be working and contributing to a 401(k) or 403(b), but you would like help with investment selections or at least a second opinion. Our Investment Committee has created a specific process for helping clients review their investment options. To get started, we need the following:

  • Recent statement showing account balances and current investments;
  • Complete list of investment options with corresponding ticker symbols.

Another alternative is that you may have the option for Linscomb & Williams to directly manage your employer sponsored retirement accounts. For company retirement accounts administered by Fidelity or Schwab, there is often an option to set up a Self-Directed Brokerage Account as part of your employer’s retirement plan that gives you access to a much broader range of investments, including individual stocks, individual bonds, mutual funds and exchange traded funds.  Here are the key steps involved:

  • Through Fidelity or Schwab, we can help you open such a brokerage account.  Schwab calls their version a “Personal Choice” Account.  Fidelity calls their version a “Brokerage-link” account.
  • Once open, the monies held in your 401(k) or other employer sponsored account are transferred into this new account.
  • At that point, we can begin managing the 401(k) in conjunction with your overall investment policy and strategy.
  • When future contributions are made to your 401(k), they can add to your new brokerage account, and we will invest them accordingly.

If you retire or leave your current employer, the 401(k) brokerage account monies can be rolled into an IRA.

Ideas That May Improve Your Finances in 2015

Ideas That May Improve Your Finances in 2015

Here is a list of planning ideas for 2015.  Not all of them will apply, but possibly one or two will strike a chord.  We hope you find the list helpful and of interest.  Please give us your feedback, and don’t hesitate to contact your Wealth Advisor if you have any questions.

Are you getting closer to retirement?

If retirement is approaching, now is the time to think about what you will do with your pension, deferred compensation, stock options, health insurance, and so on.  When it comes to transitioning to retirement, we can help you evaluate key decisions.  Here are just a few examples:

  1. What should I do with my employer sponsored retirement accounts?
  2. Will I benefit more from taking a monthly pension or receiving a lump sum payment?
  3. How should I withdraw funds from my portfolio to cover living expenses now that I’m not receiving a pay check?
  4. What is the right strategy for exercising my remaining stock options?

Did you change jobs recently?

We have a mobile workforce these days.  Starting a new job or leaving an old one brings about important financial decisions.  This often includes making the right benefit elections and selecting payout options for certain retirement plans and severance packages.

Is it time to rebalance your 401(k) or 403(b)?

There were some wide variations in returns for different types of investments last year.  With that in mind, now is a good time to take a look at how your employer sponsored retirement accounts are invested.

We often encounter 401(k) and 403(b) accounts that have not been reviewed in quite some time.  Investment options in these accounts change; as do markets, fund managers and risks.  So it’s always good to take a fresh look at your strategy.

As the chart below shows, asset classes, come into and out of favor over different market cycles.  Making sure your accounts are properly diversified with the right mix of investments, will help you achieve your goals, and should make for a less bumpy ride along the way.

Asset Class Returns

 

Is this a milestone year?

Is this the year you need to file for Medicare, Social Security, or do you need to begin taking required minimum distributions (RMDs)?

Required Minimum Distributions (RMDs) – Generally, an individual must take their first RMD by April 1st of the year following the year in which they turn age 70 ½.  Clear as mud, right?  There are several key decisions to make when taking your RMD, among them:

  1. How much do I need to withdrawal to avoid penalties?
  2. When do I make the withdrawal?
  3. How much should I withhold, if any, for income taxes?

Social Security – Deciding when to begin Social Security benefits is highly dependent on your cash flow needs, expected longevity, and whether you have a spouse eligible for benefits on their own independent earnings record.  Running the numbers can help quantify different claiming options.  We have developed best practices and tools to help you make an informed decision about when to begin Social Security benefits.

Are you the beneficiary of a trust?

The top tax rate (39.6%) for trusts and individuals is the same, but with a trust, income is taxed at the top rates much sooner.  Also, the net investment income tax (i.e., Medicare Surtax of 3.8%) and higher dividend and capital gains rates, kick in much earlier for trusts.

With trust distribution planning, you may be able to reduce the overall income tax liability by shifting income from the trust’s income tax return to your own return.  (Keep in mind there are often other reasons to not make distributions from a trust, such as asset protection.)  We can help you think through the decision making process, and coordinate a plan with you and your CPA.

Should you refinance?

Despite all of the talk and expectation for higher interest rates, the opposite has proven to be true in the past year.  Rates have generally fallen and now may be a good time to refinance a loan, or reevaluate the overall structure of any debt that you may have.

Do you have a current financial statement?

Do you have an up-to-date personal financial statement that lists your assets (what you own) and liabilities (what you owe)?  From just a quick review of a personal financial statement, it is not at all unusual to find opportunities that can simplify your finances or save you money.  We can help you build a personal financial statement if that’s of interest.

Do you have a complete list of your digital life? 

This is a hot topic in the estate planning world now that so much of our lives are online.  And, the question not only deals with access to financial accounts, but also what might happen with things like your LinkedIn or Facebook accounts should something happen to you.

Most of the questions and comments we receive are about keeping track of and remembering passwords, identify theft, and fraud.  There are a number of good resources out there that can help you keep track and protect yourself.  Planning for our digital lives is now a key component of a good financial plan.

Do you know what your estate plan says? 

Are your executor and trustee appointments still appropriate?  Are you still comfortable with distribution provisions for kids and grandkids?  Has your family grown with the addition of new children or grandchildren?  Has your financial situation changed materially?  Are your beneficiary designations for retirement accounts and life insurance up to date?  What about account titles?

Note that with the big jump in estate tax exemptions ($5.43 million per individual); much of the focus of estate planning, has switched from estate tax reduction to income tax reduction.  To benefit, you may need to tweak your plan.

Also, where are your key documents located, and will your executor or power of attorney know how and where to find these if something happens to you?

How does your P&C insurance compare?

When is the last time you really sat down and tried to understand your homeowners, automobile, and liability coverage?  It’s certainly not exciting, but it is very important to do.

Through a review of current statements, we typically find savings opportunities or ways to improve coverage.  To help coordinate a review,  we simply need current declaration pages for your existing coverage.

Is now a good time to travel?

Okay, so we rarely tell clients to spend more money, but Europe is on sale (good note for the portfolio discussion as well).  The Euro has fallen significantly against the US Dollar.  If you’ve been putting off that trip, and you’ve budgeted for it, now may be a good time to go (all else being equal of course).