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eMagazine – September 2016

September 26th, 2016 | No Comments | Posted in eMagazine

September 2016

Characteristics of the Millionaires Next Door

September 19th, 2016 | No Comments | Posted in Financial News

The habits and values of wealthy Americans.
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Just how many millionaires does America have? By the latest estimation of Spectrem Group, a research firm studying affluent and high net worth investors, it has more than ever before. In 2015, the U.S. had 10.4 million households with assets of $1 million or greater, aside from their homes. That represents a 3% increase from 2014. Impressively, 1.2 million of those households were worth between $5 million and $25 million.1

How did these people become rich? Did they come from money? In most cases, the answer is no. The 2016 edition of U.S. Trust’s Insights on Wealth and Worth survey shares characteristics of nearly 700 Americans with $3 million or more in investable assets. Seventy-seven percent of the survey respondents reported growing up in middle class or working class households. A slight majority (52%) said that the bulk of their wealth came from earned income; 32% credited investing.2

It appears most of these individuals benefited not from silver spoons in their mouths, but from taking a particular outlook on life and following sound financial principles. U.S. Trust asked these multi-millionaires to state the three values that were most emphasized to them by their parents. The top answers? Educational achievement, financial discipline, and the importance of working.2

Is education the first step toward wealth? There may be a strong correlation. Ninety percent of those polled in a recent BMO Private Bank millionaire survey said that they had earned college degrees. (The National Center for Education Statistics notes that in 2015, only 36% of Americans aged 25-29 were college graduates.)3

Interestingly, a lasting marriage may also help. Studies from Ohio State University and the National Bureau of Economic Research (NBER) both conclude that married people end up economically better off by the time they retire than singles who have never married. In fact, NBER finds that, on average, married people will have ten times the assets of single people by the start of retirement. Divorce, on the other hand, often wrecks finances. The OSU study found that the average divorced person loses 77% of the wealth he or she had while married.3

Most of the multi-millionaires in the U.S. Trust study got off to an early start. On average, they began saving money at 14; held their first job at 15; and invested in equities by the time they were 25.2

Most of them have invested conventionally. Eighty-three percent of those polled by U.S. Trust credited buy-and-hold investment strategies for part of their wealth. Eighty-nine percent reported that equities and debt instruments had generated most of their portfolio gains.2

Many of these millionaires keep a close eye on taxes & risk. Fifty-five percent agreed with the statement that it is “more important to minimize the impact of taxes when making investment decisions than it is to pursue the highest possible returns regardless of the tax consequences.” In a similar vein, 60% said that lessening their risk exposure is important, even if they end up with less yield as a consequence.2

Are these people mostly entrepreneurs? No. The aforementioned Spectrem Group survey found that millionaires and multi-millionaires come from all kinds of career fields. The most commonly cited occupations? Manager (16%), professional (15%), and educator (13%).4 

Here is one last detail that is certainly worth noting. According to Spectrem Group, 78% of millionaires turn to financial professionals for help managing their investments.

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.

«RepresentativeDisclosure»

Citations.
1 – cnbc.com/2016/03/07/record-number-of-millionaires-living-in-the-us.html [3/7/16]
2 – forbes.com/sites/maggiemcgrath/2016/05/23/the-6-most-important-wealth-building-lessons-from-multi-millionaires/ [5/23/16]
3 – businessinsider.com/ap-liz-weston-secrets-of-next-door-millionaires-2016-8 [8/22/16]
4 – cnbc.com/2016/05/05/are-you-a-millionaire-in-the-making.html [5/5/16]

Are There Really Tax-Free Retirement Plan Distributions?

September 19th, 2016 | No Comments | Posted in Financial News

A look at some popular & obscure options for receiving money with little or no tax.

shutterstock_191070785Will you receive tax-free money in retirement? Some retirees do. You should know about some of your options for tax-free retirement distributions, some of which are less publicized than others.

Qualified distributions from Roth accounts are tax-free. If you own a Roth IRA or have a Roth retirement account at work, you can take a tax-free distribution from that IRA or workplace retirement plan once you are older than 59½ and have held the account for at least five tax years. One other nice perk: original owners of Roth IRAs never have to take Required Minimum Distributions (RMDs) during their lifetimes. (Owners of employer-sponsored Roth retirement accounts are required to take RMDs.)1,2

Trustee-to-trustee transfers of retirement plan money occur without being taxed. In a rollover of this kind, the custodian financial firm that hosts your workplace retirement plan account makes a payment directly out of the account to an IRA you have waiting, with not a penny in taxes levied or withheld. Trustee-to-trustee transfers of IRAs work the same way.3

If you are older than 80, you might get a tax break on a lump-sum withdrawal. If you were born prior to January 2, 1936, you could be entitled to a tax reduction on a lump-sum distribution out of a qualified retirement plan in certain cases. Unfortunately, this is never the case with an IRA RMD.4

Your heirs could receive tax-free dollars resulting from life insurance. Payouts on permanent life insurance policies are normally exempt from federal income tax. (The payout may be included in the value of your taxable estate, though.) A life insurance death benefit paid out from a qualified retirement plan is also tax-exempt provided the death benefit is greater than the policy’s pre-death cash surrender value. Even if an employee takes a distribution from a corporate-owned life insurance policy on his or her life while still alive, that distribution may not be fully taxable as it may constitute a return of the principal invested in the life insurance contract.4,5

Sometimes the basis in a workplace retirement account can be withdrawn tax-free. If you have made non-deductible contributions through the years to an IRA or an employer-sponsored retirement plan account, these contributions are not taxable when they are distributed to the original account owner, accountholder, or an account beneficiary – it is considered return of principal, a recovery of the original account owner or accountholder’s cost of investment.4

IRA contributions can optionally be withdrawn tax-free before their due date. As an example, your 2016 IRA contribution can be withdrawn tax-free by the due date of your federal tax return – April 15 or thereabouts. If you file Form 4868, you have until October 15 (or thereabouts) to do this.6

Withdrawals such as these can only happen, however, if you meet two tests set forth by the IRS. First, you must not have taken a deduction for your contribution. Second, you must, additionally, withdraw any interest or income those invested dollars earned. You can also take investment losses into account. (There is a worksheet in IRS Publication 590 you can use to calculate applicable gains or losses.)6

These common and obscure paths toward tax-free retirement income may be worth exploring. Who knows? Perhaps, this year, your retirement will be less taxing than you think.

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.

«RepresentativeDisclosure»

Citations.
1 – irs.gov/retirement-plans/retirement-plans-faqs-on-designated-roth-accounts [1/26/16]
2 – irs.gov/retirement-plans/retirement-plans-faqs-regarding-required-minimum-distributions [7/28/16]
3 – irs.gov/retirement-plans/plan-participant-employee/rollovers-of-retirement-plan-and-ira-distributions [2/19/16]
4 – news.morningstar.com/articlenet/article.aspx?id=764726 [8/13/16]
5 – doughroller.net/personal-finance/life-insurance-proceeds-tax/ [8/18/16]
6 – tinyurl.com/gwoxed8 [8/18/16]

The Trump & Clinton Tax Plans

September 19th, 2016 | No Comments | Posted in Financial News

How do they differ?

shutterstock_171116387Seemingly every presidential candidate offers a plan for tax reform. You can add Donald Trump and Hillary Clinton to that long list. Here is a look at their plans, and the key reforms to federal tax law that might result if they were enacted.

Donald Trump revised his tax plan this summer. The latest plan put forth by Trump and his advisors contains the key features of the one introduced last year.

Under Trump’s plan, the standard deduction would rise. It would rise from the current level of $6,300 to $25,000 for single filers. Joint filers could claim a $50,000 standard deduction. (The GOP plan proposes respective standard deductions of $12,000 and $24,000.) Instead of seven federal income tax rates, there would just be three – 12%, 25%, and 33%. (In his original tax reform blueprint, the rates were 10%, 20%, and 25%.)1

The estate tax would vanish entirely under Trump’s plan. Taxes on capital gains and dividends would top out at 20%.2,3

Trump wants to reduce the corporate tax rate from 35% to 15%. The new lower rate would apply to partnerships, LLCs, and S corps as well as C corps. (With a proposed corporate tax ceiling of 15% and a proposed individual tax ceiling of 33%, some economists have wondered if a Trump presidency might generate a wave of individuals incorporating themselves.) Full expensing would also be allowed for business investments under Trump’s plan.1

Notably, Trump’s reforms would do away with the deferral of taxes on foreign profits. As it stands now, corporate taxes on foreign profits are deferred until overseas affiliates repatriate them. It can take years for those inbound dividends to arrive. The Trump plan would tax domestic and foreign profits on the same current-year basis.1

Trump has also publicly spoken of greater tax relief for families raising children. This would likely not be an expansion of the Child and Dependent Care Credit, but something new – either a deduction, a credit, or an exclusion. Given the high standard deductions that would be offered if Trump’s tax plan becomes law, higher-income households might be most interested in such an expanded child care deduction. If the Trump plan applies a child care deduction to payroll taxes rather than income taxes, many lower-income households could, theoretically, claim it. Less payroll tax revenue would mean less revenue for some key government programs.1

Hillary Clinton’s tax plan would lower some taxes & raise others. As the non-partisan Tax Policy Center has noted, only around 5% of Americans would see any real change to their taxes under the Clinton reforms – but the richest Americans would pay higher income taxes under her plan. Clinton’s corporate tax reforms would encourage firms to do more business in America, while her estate tax reforms could prompt changes in wealth transfer planning for some families.2,3

High-earning households could see marginal rates rise. Under Clinton’s plan, taxpayers with adjusted gross incomes greater than $5 million would pay a 4% surtax, effectively setting their marginal tax rate at 43.6%. Anyone earning more than $1 million would face an effective tax rate of 30%. Investors would have to buy and hold for longer intervals to take advantage of long-term capital gains tax rates. The current long-term rate of 20% would only apply if an investor owned an investment for six years; in preceding years, it would be incrementally higher.2,3,4

The federal estate tax would also rise to 45% through Clinton’s reforms. The current $5.45 million individual exemption would be reduced to $3.5 million ($7 million for married couples).2

Clinton’s plan would adjust corporate taxation. U.S. firms would find it harder to make tax inversions, whereby they merge with an overseas competitor and move their headquarters to another country to exploit that nation’s lower corporate tax rate. Earnings stripping – in which U.S. affiliates of multinational corporations “strip” profits from their stateside taxable income and send them to overseas parent companies in pursuit of tax savings – would cease. Companies would also face limits on deducting interest payments on their debt. While she has talked of a tax on the biggest financial institutions, Clinton has also expressed a desire to make the process of estimating, filing, and paying taxes less involved for small business owners.2,3

Like Trump, Clinton wants tax relief for families. She wants a new kind of tax credit for child care; the details have yet to emerge at this writing.2

These plans have one destination. That is Congress, and there is no telling how many or how few of these reforms may become law if Clinton or Trump are elected.

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.

«RepresentativeDisclosure»

Citations.
1 – taxanalysts.org/tax-analysts-blog/trump-s-tax-plan-version-20/2016/08/12/194511 [8/12/16]
2 – nytimes.com/2016/08/13/upshot/how-hillary-clinton-and-donald-trump-differ-on-taxes.html [8/13/16]
3 – cbsnews.com/news/hillary-clinton-donald-trump-taxes-presidential-campaign-2016/ [8/3/16]
4 – fool.com/investing/2016/06/19/how-would-hillary-clinton-change-your-taxes.aspx [6/19/16]

Are You Insured?

September 19th, 2016 | No Comments | Posted in Financial News

Too many Americans have no life insurance. Their loved ones may pay dearly for that choice.
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September is National Life Insurance Awareness Month – a good time to think about the value and importance of insuring yourself.

According to a recent Bankrate survey, 42% of Americans have no life insurance at all. They may not know that life insurance coverage has become much more affordable than it once was.1

Many people ask if life insurance is really worth the cost; maybe you are among them. The simple answer to that question is yes. It can be stunningly cheap: a healthy, non-smoking man in his thirties may pay less than $45 a month for a $1 million 20-year term policy. Permanent life insurance costs more than term life insurance, but permanent life policies can build cash value over time; term policies cannot.2

Life insurance is about managing risk, and if other people rely on you financially, you need to have it in place in case your passing puts them at financial risk. When a spouse or parent dies, there are financial matters to address: a sudden lack of income for a household, bills and mortgages or rent to pay, final expenses such as funeral or cremation costs, and the cost of children’s education. Without adequate life insurance coverage, a household is hard-pressed to meet these immediate, financially draining challenges.

Many growing families have inadequate life insurance coverage. The Bankrate survey discovered that 37% of parents with children under age 18 had no policy at all. Some younger families find coverage through group plans, but perhaps not enough: 32% of the survey respondents raising minor children said that the death benefits on their life insurance contracts were $100,000 or less.1

The problem of inadequate coverage seems to plague households of all ages. A five-figure life insurance payout can pay for a funeral, but it will not offer much economic insulation to a family after a wage earner dies. Bankrate found that 47% of the Americans who have life insurance have policies with coverage amounts of $100,000 or lower. Twenty-one percent of Americans have policies with death benefits of $25,000 or lower.1

How much coverage is adequate for you? Ideally, you should determine that with the help of an insurance professional. As a rough rule of thumb, the death benefit on a policy should be about 15 times your income. If you are considering a term life policy, the term should not end before your envisioned retirement age.2

Life insurance can also be valuable while you are alive. A policy with cash value components may grow over time, either by a fixed amount per year or a variable amount as a result of the insurer directing some of the assets into underlying equity investments. (In such cases, it is also possible for the cash value to decline if the underlying investments do poorly.) After a while, you may be able to borrow against the cash value. Sometimes the payout amount on these types of policies can be adjusted as well as the size of the premiums. Of course, you must keep paying the premiums to keep any kind of permanent life or term life policy in force.3

While you may decide you prefer one kind of policy over another, the important thing is to have coverage in place – not just to reassure yourself, but those you love. Life insurance can help a spouse or a family maintain financial equilibrium at a time when it is most needed.

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.

«RepresentativeDisclosure»

Citations.
1 – bankrate.com/finance/insurance/money-pulse-0715.aspx [7/8/15]
2 – forbes.com/sites/timmaurer/2016/01/05/10-things-you-absolutely-need-to-know-about-life-insurance/ [1/5/16]
3 – nerdwallet.com/blog/insurance/should-you-consider-cash-value-life-insurance/ [5/6/15]

September 2016 – Monthly Economic Update

September 19th, 2016 | No Comments | Posted in Uncategorized

september2016-monthlyeconomicupdate

Why The Five-Second Rule Is ‘Sort Of’ Right

September 19th, 2016 | No Comments | Posted in Lifestyle

It’s all about the kind of food and the kind of floor.

shutterstock_404250001If you’ve ever had your doubts about the “five-second rule,” a new study won’t come as much of a surprise. It shows that food dropped on the floor can get pretty germyeven if you scoop it up within the proverbial five seconds.

“Bacteria can contaminate instantaneously,” Dr. Donald Schaffner, a professor of food science at Rutgers University and co-author of the study, said in a written statement.

For the study, which was published online on Sept. 2 in the journal Applied and Environmental Microbiology, Schaffner and a collaborator dropped four foods (watermelon, gummy candy, bread and buttered bread) onto four different surfaces (steel, ceramic tile, wood and carpet) that had been contaminated with a harmless relative of disease-causing Salmonella bacteria.

The food was allowed to remain in contact with the surfaces for one, five, 30 or 300 seconds before being removed and tested to see if it had become contaminated with the germs.

What did the study show? Steel and tile surfaces tended to transfer more bacteria, while transfer rates from wood were more variable.

More to the point, the longer the food remained in contact with the germy surface, the greater the contamination tended to be. Watermelon showed the greatest contamination, gummy candy the least. That’s not especially surprising given that bacteria thrive in moisture.

“Bacteria don’t have legs, they move with the moisture, and the wetter the food, the higher the risk of transfer,” Schaffner said in the statement.

This isn’t the first time scientists have taken on the five-second rule.

A 2014 study conducted at Ashton University in England used similar methodology but employed E. coli and Staphylococcus bacteria. The research, which wasn’t subjected to peer review, found time on the floor to be a “significant factor” in determining the level of contamination ― and moist food on a tiled or laminated surface was the diciest proposition.

And earlier this year, the Discovery Science Channel aired a segment in which the narrator said that “moist foods left longer than 30 seconds [on the ground] collect 10 times the bacteria than those snapped up after only three.”

So where does that leave us?

Schaffner said the key take-away from his research was that the five-second rule simply doesn’t hold true for for very moist foods that fall onto non-absorbent surfaces. But, he added, “for some foods dropped on other surfaces, the transfer rate does increase with time, making this five-second rule ‘sort of’ right.”

Maybe just hold onto your food.

Source: huffingtonpost.com

Want To Keep Medical Costs Down? Hit The Gym

September 19th, 2016 | No Comments | Posted in Lifestyle

Consider this permission to splurge on that $40 bootcamp class.

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We all know that exercise is good for your health. But did you know that it’s also good for your wallet?

A recent study found that adults with cardiovascular disease ― think: coronary artery disease, stroke, heart attack, arrhythmias or peripheral artery disease ― who also exercised regularly spent $2,500 less on health care than their sedentary counterparts.

The study, which was published in the Journal of the American Heart Association, looked at data from a 2012 national survey of 26,000 American adults and used the American Heart Association’s exercise recommendation of at least 30 minutes of moderate-intensity aerobic exercise five times a week as the benchmark for recommended exercise.

“The message to the patient is clear,” Dr. Khurram Nasir, a cardiologist and the paper’s senior author, author, told The American Heart Association.

“There is no better pill in reducing the risk of disease and healthcare costs than optimizing physical activity.”

Healthy people saved money too

The results for healthy participants were more modest ― but not insignificant. Those without heart disease who reported no more than one cardiovascular risk factor saved $500 on average in yearly medical costs if they met exercise recommendations, compared to the participants who didn’t exercise.

It’s encouraging news on top of what we already know about exercise’s myriad health benefits, including a reduced risk of heart disease, stroke, diabetes and high blood pressure, as well as improved mood and help preventing excess weight gain, according to the Mayo Clinic.

Of course, splurging on pricey fitness classes and gym memberships can eat into those savings, but if that’s what gets you working out, consider this permission to sign up and shell out. That Pilates class may pay for itself.

Source: huffingtonpost.com

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