SECURE ACT 2.0 Is FINALLY Happening!

Contributed by: Kali Hassinger, CFP®, CSRIC™

For the last several months, we have been monitoring the possibility of a "Secure Act 2.0" being passed into legislation. The initial SECURE Act (which stands for Setting Every Community Up for Retirement) was passed in late 2019, and had far-reaching effects on Required Minimum Distributions, inherited retirement accounts, and expanded the ability to contribute to IRAs.

Throughout the year, there have been talks about additional legislation through the Secure Act 2.0 to further expand access to retirement savings for individuals, small-business employees, employees with student loans, and part-time workers. 

On Thursday, December 22nd, Secure Act 2.0 was pushed through as part of the $1.7 billion 2023 omnibus appropriations bill (which is a brief 4,000+ page read). Some of the key provisions contained in the bill include:

• Higher retirement plan catch-up limits beginning at age 60 and increasing each year of age. This will likely go into effect in 2024.

• Increasing the Required Minimum Distribution age to 73 in 2023, and eventually it will be increased to age 75 over several years.

• Requiring employers to auto-enroll new employees into their current 401(k) or 403(b) plans with an automatic contribution increase each year.

• The tax penalty for missing a Required Minimum Distribution will be reduced from 50% to 25%, with the future ability to reduce the penalty to 10% if the miss is corrected in a timely manner.

• The establishment of a “starter” 401(k) plan or 403(b) plan for employers that do not currently offer retirement plans.

• A 100% tax credit for employer matches in newly established employer retirement plans.

• Allowing student loan repayments to be treated as retirement plan contributions for company match purposes.

• Establishment of a retirement savings Lost and Found for those who have lost track of old retirement plans.

• A pension linked emergency savings provision.  These accounts must be held in cash and contributions (up to a maximum balance of $2,500) must be treated as retirement plan contributions for matching purposes. Distributions would be tax free.

• Emergency withdrawals up to $1,000 every 3 years, or until the previous withdrawal has been paid back, will be allowed from retirement plans.

• Part-time employees with 2 years of 500+ hours will qualify for retirement plan participation

• The ability to transfer some 529 funds to a Roth IRA in the 529 beneficiary’s name. The amount that can be transferred is subject to Roth IRA annual contribution limits with the lifetime transfer amount of $35,000. Roth IRA contribution income limits do not apply.  The 529 needs to have been established for 15 years.

Many of these updates will slowly go into effect over time, and we are continuing to actively monitor and research Secure Act 2.0 as details continue to emerge. We will provide additional information as it is available, but if you have any questions about how this could affect you, please contact your Financial Planner. We are always happy to help!

Kali Hassinger, CFP®, CSRIC™ is a Financial Planning Manager and CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® She has more than a decade of financial planning and insurance industry experience.

The information contained in this letter does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Kali Hassinger, CFP®, CSRIC™, and not necessarily those of Raymond James. Expression of opinion are as of this date and are subject to change without notice. There is no guarantee that these statement, opinions or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or loss regardless of strategy selected, including diversification and asset allocation. Individual investor’s results will vary. Past performance does not guarantee future results. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Rebalancing a non-retirement account could be a taxable event that may increase your tax liability.

Do You Know Why 2020 Is A Critical Year For Tax Planning?

Contributed by: Nick Defenthaler, CFP®, RICP®

It’s been quite the year, hasn’t it? 2020 has certainly kicked off the decade in an interesting fashion. In addition to the coronavirus quarantine, it’s also a year that required a significant amount of tax planning and forward-thinking. Why is this year so unique as it relates to taxes? Great question, let's dive in!

SECURE Act

The SECURE ACT was passed in late December 2019 and became effective in 2020. The most meaningful part of the SECURE Act was the elimination of the stretch IRA provision for most non-spouse IRA beneficiaries. Non-spouse beneficiaries now only have a 10-year window to deplete the account which will likely result in the beneficiary being thrust into a higher tax bracket. This update has made many retirees re-think their distribution planning strategy as well as reconsider who they are naming as beneficiaries on certain accounts, given the beneficiary’s current and future tax bracket. Click HERE to read more about this change. 

CARES Act 

Fast forward to March, the CARES Act was passed. This critical stimulus bill provided direct payments to most Americans, extended and increased unemployment benefits, and outlined the parameters for the Paycheck Protection Program for small business relief. Also, another important aspect of the CARES Act was the suspension of Required Minimum Distributions (RMDs) for 2020. This isn’t the first time this has occurred. Back in 2009, RMDs were suspended to provide relief for retirees given the “Great Recession” and financial crisis. However, the reality is that for most Americans who are over 70 1/2 and subject to RMDs (RMDs now begin at age 72 starting in 2020 due to the SECURE Act), actually need the distributions for cash flow purposes. That said, for those retirees who have other income sources (ex. Social Security, large pensions, etc.) and investment accounts to cover cash flow and don’t necessarily “need” their RMD for the year for cash flow, 2020 presents a unique planning opportunity. Not having the RMD from your IRA or 401k flow through to your tax return as income could reduce your overall income tax bracket and also lower your future Medicare premiums (Part B & D premiums are based on your Modified Adjusted Gross Income). We have seen plenty of cases, however, that still make the case for the client to take their RMD or at least a portion of it given their current and projected future tax bracket. There is certainly no “one size fits all” approach with this one and coordination with your financial planner and tax professional is ideal to ensure the best strategy is employed for you. 

Lower Income In 2020

Income for many Americans is lower this year for a myriad of reasons. For those clients still working, it could be due to a pay cut, furlough, or layoff. Unfortunately, we have received several dozen calls and e-mails from clients informing us that they have been affected by one of the aforementioned events. In anomaly years where income is much less than the norm, it presents an opportunity to accelerate income (typically though IRA distributions, Roth IRA conversions, or capital gain harvesting). Every situation is unique so you should chat with your planner about these strategies if you have unfortunately seen a meaningful reduction in pay. 

Thankfully, the market has seen an incredible recovery since mid-March and most diversified portfolios are very close to their January 1st starting balances. However, income generated in after-tax investment accounts through dividends and interest are down a bit given dividend cuts by large corporations and because of our historically low interest rate environment. We were also were very proactive in March and April with a strategy known as tax-loss harvesting, so your capital gain exposure may be muted this year. Many folks will even have losses to carry over into 2021 and beyond which can help offset other forms of income. For these reasons, accelerating income could also be something to consider. 

Higher Tax Rates In 2021, A Very Possible Scenario 

Given current polling numbers, a Democratic sweep seems like a plausible outcome. If this occurs, many analysts are predicting that current, historically low rates could expire effective January 1, 2021. We obviously won’t know how this plays out until November, but if tax rates are expected to see a meaningful increase from where there are now, accelerating income should be explored. Converting money from a Traditional IRA to a Roth IRA or moving funds from a pre-tax, Traditional IRA to an after-tax investment account (assuming you are over the age of 59 1/2 to avoid a 10% early withdrawal penalty) eliminates the future uncertainty of the taxes on those dollars converted or distributed. Ever since the Tax Cuts and Jobs Act was passed in late 2017 and went into law in 2018, we have been taking a close look at these strategies for clients as the low tax rates are set to expire on January 1, 2026. However, if taxes have a very real chance of going back to higher levels as soon as 2021, a more aggressive income acceleration plan could be prudent. 

As you can see, there have been many moving parts and items to consider related to tax planning for 2020. While we spend a great deal of our time managing the investments within your portfolio, our team is also looking at how all of these new laws and ever-changing tax landscape can impact your wealth as well. In our opinion, good tax planning doesn’t mean getting your current year’s tax liability as low as humanly possible. It’s about looking at many different aspects of your plan, including your current income, philanthropy goals, future income, and tax considerations as well as considering the individuals or organizations that will one day inherit your wealth and helping you pay the least amount of tax over your entire lifetime.

Nick Defenthaler, CFP®, RICP®, is a Partner and CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® Nick specializes in tax-efficient retirement income and distribution planning for clients and serves as a trusted source for local and national media publications, including WXYZ, PBS, CNBC, MSN Money, Financial Planning Magazine and OnWallStreet.com.

---

All investments are subject to risk. There is no assurance that any investment strategy will be successful. Unless certain criteria are met, Roth IRA owners must be 59½ or older and have held the IRA for five years before tax-free withdrawals are permitted. Additionally, each converted amount may be subject to its own five-year holding period. Converting a traditional IRA into a Roth IRA has tax implications. Investors should consult a tax advisor before deciding to do a conversion. Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.

Is the Diversified Portfolio Back?

Contributed by: Robert Ingram

(Repurpose of the 2014 blog: ‘Why I Didn’t Like My Diversified Portfolio’)

As our team finished 2018 and began reviewing the 2019 investment landscape, I couldn’t help but to think of a Money Centered blog written by our Managing Partner, Tim Wyman. As Tim shared:

“I was reminded of the power of headlines recently as I was reviewing my personal financial planning; reflecting on the progress I have made toward goals such as retirement, estate, tax, life insurance, and investments. And, after reviewing my personal 401k plan, and witnessing single digit growth, my immediate reaction was probably similar to many other investors that utilize a prudent asset allocation strategy (40% fixed income and 60% equities). I’d be less than candid if I didn’t share that my immediate thought was, “I dislike my diversified portfolio”.

The headlines suggest it should have been a better year. However, knowing that the substance is below the headlines, and 140 characters can’t convey the whole story, my diversified portfolio performed just as it is supposed to in 20xx.”

This may have been a familiar thought throughout 2018. Interestingly though, Tim’s blog post was actually from 2015. He was describing 2014.

THE FINANCIAL HEADLINES – Same Old, Same Old?

The financial news about investment markets today still focuses primarily on three major market indices: the DJIA, the S&P 500, and the NASDAQ. All three are measures for large company stocks in the United States; they provide no relevance for other assets in a diversified portfolio, such as international stocks, small and medium size stocks, and bonds of all types. As in 2014, the large U.S. stock indices were at or near all-time highs throughout much of 2018. Also in that year, many other major asset classes gained no ground or were even negative for the year. These included core intermediate bonds, high yield junk bonds, small cap stocks, commodities, international stocks, and emerging markets.

Looking Beyond the Headlines

Here at The Center, our team continues to apply a variety of resources in developing our economic outlook and asset allocation strategies. We take into account research from well-respected firms such as Russell Investments, J.P.Morgan Asset Management, and Raymond James. Review the “Asset Class Returns” graphic below, which shows how a variety of asset classes have performed since 2003.

This chart shows the historical performance of different asset classes through November of 2018, as well as an asset allocation portfolio (35% fixed and 65% diversified equities). The asset allocation portfolio incorporates the various asset classes shown in the chart.

If you “see” a pattern in asset class returns over time, please look again. There is no determinable pattern. Because asset class returns are cyclical, it’s difficult to predict which asset class will outperform in any given year. A portfolio with a mix of asset classes, on average, should smooth the ride by lowering risks that any one asset class presents over a full market and cycle. If there is any pattern to see, it would be that a diversified portfolio should provide a less volatile investment experience than any single asset class. A diversified portfolio is unlikely to be worse than the lowest performing asset class in any given year. And on the flip side, it is unlikely to be better than the best performing asset class. Just what you would expect!

STAYING FOCUSED & DISCIPLINED

As during other times when we have experienced strong U.S. stock markets and periods of accelerated market volatility, some folks may be willing to abandon discipline because of increased greed or increased fear. As important as it is to not panic out of an asset class after a large decline, it remains equally important to not panic into an asset class. In the case of the S&P 500’s outperformance of many other asset classes, for example, many have wondered why they should invest in anything else. That’s an understandable question. If you find yourself in that position, you might consider the following:

• As in the five years leading up to 2015, the S&P 500 Index (even with the recent pullback in stock prices) has had tremendous performance over the last five years. However, it’s difficult to predict which asset class will outperform from year to year. A portfolio with a mix of asset classes, on average, should smooth the ride by lowering risk over a full market cycle.

• Fundamentally, prices of U.S. companies relative to their expected earnings are hovering around the long-term average. International equities, particularly the emerging markets, are still well below their normal estimates and may have con­siderable room for improvement. This point was particularly relevant in 2018 and continues to be as we begin 2019.

• Through 2018, U.S. large caps, as defined by the S&P 500 Index, have outperformed international equities (MSCI EAFE) in six of the last eight years. The last time the S&P outperformed for a significant time, 1996-2001, the MSCI outperformed in the subsequent six years.

• What’s the potential impact on a portfolio concentrated in a particular asset class, if that asset class experiences a period of loss? Remember, an investment that experienced a loss requires an even greater percentage return to get back to its original value. For example, an investment worth $100,000 that loses 50% (down to $50,000) would actually require a 100% return from $50,000 to get back to $100,000.

MANAGING RISK

Benjamin Graham, known as the “father of value investing,” dedicated much of his book, The Intelligent Investor, to risk. In one of his many timeless quotes, he says, “The essence of investment management is the management of risks, not the management of returns.” This statement may seem counterintuitive to many investors. Rather than raising an alarm, risk may provide a healthy dose of reality in all investment environments. That’s important in how we meet financial goals. Diversification is about avoiding the big setbacks along the way. It doesn’t protect against losses – it helps manage risk.

Often, during times of more volatile financial markets like those we have experienced during the last couple of months, the benefits of diversification become apparent. If you have felt the way Tim did back in 2015 about your portfolio, we hope that after review and reflection, you might also change your perspective from “I dislike my diversified portfolio” to “My diversified portfolio – just what I would expect.”

As always, if you’d like to schedule some time to review anything contained in this writing, or your personal circumstances, please let me know. Lastly, our investment committee has been hard at work for several weeks and will be sharing 2019 comments in the near future. Make it a great 2019!

Robert Ingram is a CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.®

---

Any opinions are those of Bob Ingram, CFP® and not necessarily those of Raymond James. This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected, including diversification and asset allocation. The Dow Jones Industrial Average (DJIA), commonly known as “The Dow” is an index representing 30 stock of companies maintained and reviewed by the editors of the Wall Street Journal. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. The MSCI is an index of stocks compiled by Morgan Stanley Capital International. The index consists of more than 1,000 companies in 22 developed markets. Investments can not be made directly in an index.

A Financial Plan: What is it & Who needs one?

 October is Financial Planning Month and Center Partner Tim Wyman takes this opportunity to bring us back to the basics. In this blog 5-part series he clarifies some general questions about financial planning and the financial planning process. 

I must admit, I cringe a bit when hearing the question, “What is a financial plan?” That’s because of my firm belief that the focus should be on the “ing” in planning.  However, a financial plan, done correctly, is a comprehensive road map designed to assist in achieving whatever goals are important to you.  

A financial plan should include analysis and recommendations in areas such as: 

• Cash management and financial statements
• A review of risk management needs
• Analysis as to needed retirement savings goals
• A plan to reduce income tax liability
• A comprehensive investment plan
• Coordination of estate goals 

Most importantly, a financial plan should be an ongoing guide and not a leather binder placed on the shelf to collect dust!  A financial plan can be used to align financial strategies and decisions as life events occur. 

Do I need a financial plan? 

Who needs a financial plan? Financial planning provides a method or structure to help you achieve your life’s goals, no matter how wealthy (or unwealthy) you are.  Whether you work with a Certified Financial Planner™ practitioner or do it on your own, the financial planning process can be the catalyst in making good decisions and achieving your financial goals. 

In the 4^th blog of this 5-part series, we’ll look at how to prepare a financial plan and how much it might cost you.

Timothy Wyman, CFP®, JD is the Managing Partner and Financial Planner at Center for Financial Planning, Inc. and is a frequent contributor to national media including appearances on Good Morning America Weekend Edition and WDIV Channel 4 News and published articles including Forbes and The Wall Street Journal. A leader in his profession, Tim served on the National Board of Directors for the 28,000 member Financial Planning Association™ (FPA®), trained and mentored hundreds of CFP® practitioners and is a frequent speaker to organizations and businesses on various financial planning topics.

---

Any opinions are those of Center for Financial Planning, Inc., and not necessarily those of RJFS or Raymond James.  Every investor’s situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment.  Clients should evaluate if an asset-based fee is appropriate in servicing their needs.  A list of additional considerations, as well as the fee schedule, is available in the firm’s Form ADV Part II as well as in the client agreement.

Is Wealth Management different than Financial Planning?

 October is Financial Planning Month and Center Partner Tim Wyman takes this opportunity to bring us back to the basics. In this blog 5-part series he clarifies some general questions about financial planning and the financial planning process. 

The financial planning profession is still a relatively new profession and continues to develop and mature. In the last ten years or so, some firms have begun using the phrase “Wealth Management” to describe their services.  Essentially, some firms wanted to differentiate themselves to higher income and higher net worth clients.  In many cases, Wealth Management and Financial Planning are synonyms.  There are many fine financial planners and firms in the country, unfortunately financial planning to many companies in the financial services industry is not a process; rather it is a tactic used to sell financial products.  From my perspective, the use of other names such as “wealth management” is for marketing and positioning reasons. 

In the end, financial success, like anything worthwhile, takes patience and persistence. Financial planning or wealth management done right is the process of assessing your financial goals and then developing appropriate strategies to accomplish those goals without taking unnecessary risks.  Simply stated, the purpose of financial planning is to efficiently allocate your current and future financial resources. Proper financial planning requires an ongoing series of decisions made on your part, based on interaction between you and all your advisors.  Lastly, regular updates and reviews are necessary to keep you on course and to provide you with the opportunity to make any necessary adjustments as financial conditions change. 

In my next blog, we’ll discuss who needs a financial plan and in the final installment of this series find out how to prepare your financial plan and how much it will cost. 

Timothy Wyman, CFP®, JD is the Managing Partner and Financial Planner at Center for Financial Planning, Inc. and is a frequent contributor to national media including appearances on Good Morning America Weekend Edition and WDIV Channel 4 News and published articles including Forbes and The Wall Street Journal. A leader in his profession, Tim served on the National Board of Directors for the 28,000 member Financial Planning Association™ (FPA®), trained and mentored hundreds of CFP® practitioners and is a frequent speaker to organizations and businesses on various financial planning topics.

---

Any opinions are those of Center for Financial Planning, Inc., and not necessarily those of RJFS or Raymond James.  Every investor’s situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment.  Clients should evaluate if an asset-based fee is appropriate in servicing their needs.  A list of additional considerations, as well as the fee schedule, is available in the firm’s Form ADV Part II as well as in the client agreement.

What is Financial Planning?

October is Financial Planning Month and Center Partner Tim Wyman takes this opportunity to bring us back to the basics. In this blog 5-part series he clarifies some general questions about financial planning and the financial planning process.

Ok, figuring out financial planning may not be as deep as asking “what is the meaning of life”, but I would assert that pondering both can potentially be life changing. According to the Financial Planning Association®: Financial planning is the long-term process of wisely managing your finances so you can achieve your goals and dreams, while at the same time negotiating the financial barriers that inevitably arise in every stage of life. Remember, financial planning is a process, not a product.  Before we get too far, let’s be sure to acknowledge that financial planning is not about get-rich schemes or simply betting on the latest stock tip. 

Funding Life’s Goals

As an early leader in the financial planning profession, we at Center for Financial Planning view and practice financial planning in a different manner than many.  Financial planning is all about you – your goals – your family – your financial independence.  For most, money is not the end but merely the means.  Many of life’s goals [sending kids and grandkids to college, funding retirement, starting a business, passing values and asset values to the next generation, etc.] do indeed have a money or financial aspect. So it is critical that you make good financial decisions.  Financial planning provides direction, discipline and structure to improve financial decision-making and, dare I suggest, has the power to improve lives.  

A Coordinated & Comprehensive Approach

Years ago I was an adjunct professor at Oakland University. On the first day of class, I always started with the assertion, “Financial Planning provides a coordinated and comprehensive approach to achieving your goals,” (it was always question one on the first quiz, by the way). If a coordinated and comprehensive approach is not taken, you are simply left with a junk drawer of decisions and purchases. Without a comprehensive and coordinated strategy, people buy some insurance … put it in the drawer, buy a mutual fund or stock … put it in the drawer … have a living trust drafted … put it in the drawer.  Over the years, the individual pieces don’t actually fit together and all that is left is a drawer of stuff (that’s usually impossible to sort through as well). 

Integrating Goals with Approach

The financial planning process integrates or coordinates your resources (assets and income) with your goals and objectives. As you do this, here are some key points you should cover: 

• Goal identification and clarification

• Developing your Net Worth Statement

• Preparing cash flow estimates

• Analysis of income tax returns and strategies designed to help decrease tax liability

• Review of risk management areas such as life insurance, disability, long term care, and property & casualty insurance.

• College funding goals for children or grandchildren.

• Comprehensive investment management and ongoing monitoring of investments

• Financial independence and retirement income analysis

• Estate and charitable giving strategies

In my next blog, we’ll delve into the difference between wealth management and financial planning. Then we’ll take a closer look at a financial plan, who needs one, and how much you can expect to pay for it. 

Timothy Wyman, CFP®, JD is the Managing Partner and Financial Planner at Center for Financial Planning, Inc. and is a frequent contributor to national media including appearances on Good Morning America Weekend Edition and WDIV Channel 4 News and published articles including Forbes and The Wall Street Journal. A leader in his profession, Tim served on the National Board of Directors for the 28,000 member Financial Planning Association™ (FPA®), trained and mentored hundreds of CFP® practitioners and is a frequent speaker to organizations and businesses on various financial planning topics.

Any opinions are those of Center for Financial Planning, Inc., and not necessarily those of RJFS or Raymond James.  Every investor’s situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment.  Clients should evaluate if an asset-based fee is appropriate in servicing their needs.  A list of additional considerations, as well as the fee schedule, is available in the firm’s Form ADV Part II as well as in the client agreement.

Keys to Weight Loss Can be Keys to a Successful Financial Plan

 For the last several months, I have been watching my weight with the goal of improving my long-term health.  I have been following the Weight Watchers plan, which has helped me to create some solid habits for weight loss success. 

These same healthy habits can help individuals achieve financial planning success:

1. Track – Much like dieters should track what they eat, it is important for individuals to track where they spend; this helps to identify areas where overspending might be occurring.
2. Maintain Discipline – Like dieters need to stick to a plan, individuals with long-term financial goals should have a plan for saving and be committed to it.
3. Splurge Once in a While – Like a dieter who deprives him or herself for too long and then binges, individuals that have been disciplined at savings should occasionally spend on something fun to enjoy the present … but as a reward rather than a binge.
4. Be Accountable – Like a dieter should weigh in regularly and be honest with the results, individuals should meet with their financial planner at least annually to check progress and to make any needed adjustments to the plan.

If you have already formed these habits for your financial life, don’t be afraid to meet with your financial planner to check the scale.

Sandra Adams, CFP® is a Financial Planner at Center for Financial Planning, Inc. Sandy specializes in Elder Care Financial Planning and is a frequent speaker on related topics. In 2012 and 2013, Sandy was named to the Five Star Wealth Managers list in Detroit Hour magazine. In addition to her frequent contributions to Money Centered, she is regularly quoted in national media publications such as The Wall Street Journal, Research Magazine and Journal of Financial Planning.

---

Five Star Award is based on advisor being credentialed as an investment advisory representative (IAR), a FINRA registered representative, a CPA or a licensed attorney, including education and professional designations, actively employed in the industry for five years, favorable regulatory and complaint history review, fulfillment of firm review based on internal firm standards, accepting new clients, one- and five-year client retention rates, non-institutional discretionary and/or non-discretionary client assets administered, number of client households served.

Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constituteinvestment advice.  Any opinions are those of Center for Financial Planning, Inc., and not necessarily those of RJFS or Raymond James.