Is the Saver’s Credit one of the IRS’ best-kept secrets?

Saving money is tough.  There are so many ways in life to spend money and you can easily find excuses for not contributing to a 401k or an IRA.  But what if someone gave you money at the end of the year as a “reward” for doing the smart thing and saving for retirement?  Would that entice you to begin saving?  Enter what’s known as the “Saver’s Credit” to help you do just that!

What is the Saver’s Credit?

The Retirement Savings Contributions Credit (aka the Saver’s Credit) was enacted in 2001 as part of President Bush’s tax cuts, however, many folks are simply not aware it exists.  The Saver’s Credit applies to contributions made to qualified retirement plans (401k, 403b, 457) or to a Roth IRA or Traditional IRA.  To qualify for the credit, adjusted gross income (AGI) must be below $60,000 for married couples or $30,000 for single filers.  The maximum credit available is $1,000 and is a non-refundable credit. For more details check out the IRS website.

A Tax Credit vs. A Tax Deduction

A tax credit is typically more beneficial than a tax deduction, especially for those with income within the required parameters.  For example, if you’re in the 15% tax bracket and received a $1,000 tax deduction, the true tax reduction would be about $150 ($1,000 x 15%).  A tax credit, on the other hand, is a dollar for dollar reduction of tax liability.  For example, if you received the $1,000 maximum “Saver’s Credit” and your total tax liability on the year was $3,000; you would only owe $2,000 in tax. 

How do I claim the Saver’s Credit?

If you fit the AGI parameters, you need to complete form 8800.  Make sure your tax professional or tax software program is generating this form for you to make sure you are taking advantage of the credit.  Many tax software programs that offer free services are for very simple returns (1040EZ), so always be sure that the type of return you are purchasing will, in fact, allow you to take the deductions and credits that are applicable to your situation.

Who can take advantage of this tax credit?

Personally, I see this as a great opportunity for recent college graduates who are entering the work force and have “retirement savings” as number 24 on their “top 25 ways to use my paycheck”.  Many are starting off earning an income that falls within the range to take advantage of the credit and are just simply not aware that this incentive exists to save for retirement.  This is also a great opportunity for parents or grandparents to consider gifting to the young adult so they can take advantage of the credit if they simply cannot afford to make any type of retirement contribution currently.  One stipulation the parent or grandparent may put on the gift is that any added tax refund from the credit needs to be re-deposited into a retirement account.  It’s a great way to begin good savings habits that will hopefully last a lifetime!

Need more information on how to put this tax credit to work for you? Please contact me and we’ll take a look at your personal case to see if the Saver’s Credit is an option.

Nick Defenthaler, CFP® is a Certified Financial Planner™ at Center for Financial Planning, Inc. Nick currently assists Center planners and clients, and is a contributor to Money Centered and Center Connections.

This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of Center for Financial Planning, Inc. and not necessarily those of Raymond James. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Consult a tax professional for any tax matters. C14-023683

Tips to Help Avoid a Tax Audit

Nothing gets the blood pumping like a notice from the IRS letting you know you’re in for a tax audit.  According to Kipplinger Magazine, there are signs some tax payers are more susceptible to audits than others. 

Here are some red flags for the IRS:

1. High income: Incomes over $200,000 are 26% more likely to be audited, as well as one in nine persons earning over $1 million dollars.

2. Failing to report all taxable income:  Tax payers forget the IRS gets copies of all 1099’s and a mismatch sends a red flag.

3. Taking large charitable deductions:  Be sure you know the rules regarding various kinds of charitable gifts and you can document not only the amounts given but the charities as well.

4. Business write-offs: Deducting business meals, travel and other expenses.  Again, there are guidelines on what you may and may not deduct—be sure to follow them.

5. Claiming 100% business use of vehicle:  Very few workers use their car for business all the time.

6. Taking alimony deductions:  These deductions can only be taken when made part of a separation or divorce decree---not arbitrarily.

7. Running a small business:  The IRS is well aware there are many opportunities for tax deductions but again the rules are precise—follow them.

8. Failing to report a foreign bank account:  New rules have gone into effect in 2014. Foreign bank accounts will require registrations and will be reported to the IRS.

9. Engaging in currency transactions:  Cash deposits and withdrawals over $10,000 are reported—be ready to explain.

10. Taking higher than average deductions:  The IRS has estimated percentages of deductions they deem “average” for various income levels.  If your deductions fall outside these estimates, be ready to explain.

If you have any of the above deductions, have detailed documentation on the what, when and why of your deductions.  Good record keeping can help make the audit go away as easily as it was announced.

This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Any opinions are those of Center for Financial Planning, Inc. and not necessarily those of Raymond James. You should discuss any tax or legal matters with the appropriate professional. C14-022520

New Quicken Features for Raymond James Investor Access Users

 If you use Quicken software for Windows or Mac, recent updates to the Raymond James system will help by providing you easier access to your account(s). Quicken Direct Connect is now available to all clients enrolled in Investor Access who use Quicken software for budgeting and money management. Direct Connect communicates directly with a client’s Investor Access account(s), allowing you to update your Investor Access account data directly within Quicken.

Previously, Raymond James offered Quicken Web Connect to Windows users only. Web Connect requires clients to manually log in to Investor Access and take action to update their account information in Quicken. Now, Mac users may also use Quicken Web Connect.

System Requirements

Raymond James supports the following Quicken® products for both Web Connect and Direct Connect:

• Quicken® for Windows – the most current version of Quicken® and the two prior versions
• Quicken® for Mac – Quicken® Essentials for Mac 2010; Quicken® 2007 for Mac using OSX 10.7 or later

Accessing Direct Connect

Current Raymond James Web Connect Users:

You now have access to Quicken Direct Connect but must upgrade your existing account(s) in Quicken to use Direct Connect. You should have received an alert in Investor Access regarding the upgrade requirements. 

New Raymond James Direct Connect Users:

If you have not used Raymond James Quicken Web Connect downloads, you can begin using Quicken Direct Connect by logging into Quicken. You can access the Quicken® Download page in Investor Access by clicking Account Services, Client Tools, and then clicking the Quicken® Downloads link.

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Searching for yield outside savings accounts, CDs or treasuries

 A few nights ago my 7-year-old daughter and I sat on her bed and opened up her “Ariel the Mermaid” coin bank as it was starting to overflow.  While we were rolling up the coins she asked, “What are we going to do with this money?”  I explained we are going to the bank and deposit it into her account and, in exchange for holding it, they will pay her more money.  Her eyes lit up and she asked how much. Putting it as simply as possible, I explained that her $20 bill would earn about $.05 in one year.  She looked at me with her brow furrowed and said why would I do that? 

Why, indeed, is a good question many savers are asking themselves today.  People are feeling compelled to take much more risk in order to earn what a simple savings account was paying me when I was a teenager.

Seeking Higher Returns

During the recent Morningstar Investment Conference, many portfolio managers were expressing concerns on this vey topic.  Investors have gravitated toward high yield and floating rate bonds at alarming rates in the past few years in the absence of a reasonable interest rate from the savings accounts, CDs or treasuries. The chart below shows how many billions of dollars have flowed into strategies that invest in floating rate (blue bar) and high yield bonds (gray bar) each of the last ten years. You can see the spike in the past five years as rates were driven to historical lows by the Federal Reserve.

1^st Quarter JP Morgan Guide to the Markets; Flows include ETFs and are as of May 2014. Past performance is not indicative of comparable future results.

Many investors don't realize that high yield bonds are highly correlated to stocks and when stocks go down these types of bonds will also likely take a hit.  Even more concerning managers like Ben Inker of GMO and Michael Hasenstab of Franklin Templeton, see a lack of liquidity in this market.  This means if they do start to go down and people start running for the exits, there may be no willing buyers in the marketplace until the prices get low enough, resulting in potentially amplified losses to the investors left holding the bonds.  Suddenly the 4.9%* interest rate doesn't sound high enough for taking on that level of risk.  These types of investments should be no substitute for a regular savings account even though the interest rates are embarrassing!

So while my daughter may never know compelling savings accounts yields in her childhood, I still find teaching her this simple process of money and saving an invaluable lesson to start at a young age!

*Yield on Barclays Capital Corporate High Yield Index as of 6/30/2014

Angela Palacios, CFP®is the Portfolio Manager at Center for Financial Planning, Inc. Angela specializes in Investment and Macro economic research. She is a frequent contributor to Money Centered as well asinvestment updates at The Center.

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The information contained in this report 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 information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Any opinions are those of Center for Financial Planning, Inc. and not necessarily those of RJFS or Raymond James. Bonds are subject to interest rate risks. Bond prices generally fall when interest rates rise. High-yield (below investment grade) bonds are not suitable for all investors. When appropriate, these bonds should only comprise a modest portion of your portfolio. All indexes are unmanaged and an individual cannot invest directly in an index. Index returns do not include fees or expenses. The Barclays Capital High Yield Index covers the universe of fixed rate, non-investment grade debt. Pay-in-kind (PIK) bonds, Eurobonds and debt issues from countries designated as emerging markets (e.g., Argentina, Brazil, Venezuela, etc.) are excluded, but Canadian and global bonds (SEC registered) of issuers in non-EMG countries are included. Original issue zeroes, step-up coupon structures, and 144-As are also included. Michael Hasenstab, Ben Inker and GMO are independent of Raymond James. C14-022057

Social Security: Delaying vs. Collecting Retirement Benefits

 The wonderful and frustrating Socratic Method I learned in law school taught me that, for most issues, there were two plausible sides or conclusions.  Much to the chagrin of my colleagues (and dare I say my family at times) this perspective can be downright maddening.  So, as I apologize to those that have to deal with me every day! But in many instances, I also believe that it has served clients well.  As much as we’d all like a simple rule or answer at times, many of life’s decisions, and certainly financial decisions, are best contemplated based on the specific facts and circumstances. 

There may not be a greater example than this financial dilemma:

When do I begin receiving Social Security retirement benefits?

The majority of Americans take Social Security benefits at the earliest date possible, age 62, for the mere fact that they require the funds for everyday living expenses.  For those that have the financial flexibility, implementing the maximum social security strategy comes down to your specific circumstances.

Both Sides of the Social Security Coin

Financial Advisor Magazine recently published two articles on social security.  The first, Many Retirees Wish They Had Waited To Take Social Security and the second, Taking Social Security Early Can Make Sense. Your immediate response might be like mine, well wait a minute, which one is it?  Both articles do a fine job representing the pros and cons as I have shared in the past; and ultimately conclude that the “correct” decision is very individualized.

Delaying vs. Collecting at 66

The benefit of waiting past age 62 is that you will receive more each month.  And, if you wait until age 70 you will receive an 8% Delayed Credit each year from age 66 (technically from your full retirement age for people born between 1943 and 1954).  For those with a long life expectancy, waiting can add substantial dollars; but they are not realized until age 80 in most calculations.

However, delaying comes with a risk too.  If you delay and pass away early (and I say any age is considered too early), this will result in a substantial loss at best and a total loss at worst.  Also, is it reasonable to perhaps take funds from your own investments that ultimately pass to your heirs, while you wait to cross over the breakeven point?   

As shared in an earlier blog post of mine, couples have additional variables to consider due to what essentially amounts to joint life expectancy decisions.  

Whether you are single or a couple, getting the Social Security decision correct can be substantial.  I promise to go easy with the Socratic Method … but considering all of the questions and variables of your individual circumstances may lead to better decisions for you and your family.  Give us a call if we can help!

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.

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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 information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Any opinions are those of Center for Financial Planning, Inc. and not necessarily those of RJFS or Raymond James. Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website’s users and/or members. C14-019070

Curtain Call

 The Center's Team enjoys sharing their knowledge with the press to help stories come to life, share facts and bring important topics to the forefront.  We are also honored when we are recognized by media and publications for our work and service to our profession. Here's what's new:

Daniel Boyce, CFP® Recognized by Investment News

Dan received an Honorable Mention Lifetime Achievement Award as part of the Investment News Community Leadership Awards. Dan’s award is based on his contributions to Detroit ChamberWinds & Strings over many years.

The Invest in Others Charitable Foundation and Investment News announced finalists for the eighth annual Community Leadership Awards. The awards recognize the philanthropic work financial advisers perform in their communities and around the world.

5 Center Planners Recognized by Hour Detroit Magazine

Center team members Sandra Adams CFP®, Daniel Boyce CFP®, Matthew Chope CFP®, Laurie Renchik CFP®, and Timothy Wyman, CFP® received recognition by Five Star Professional in the June 2014 issue of Hour Detroit Magazine. They were named to the 2014 Five Star Wealth Managers list, a select group of wealth managers in the Detroit area.

Five Star Award is based on advisor being credentialed as an investment advisory representative or a registered investment advisor, actively employed as a credentialed professional in the financial services industry for a minimum of five years, favorable regulatory and complaint history review, fulfilled their firm review based on internal firm standards, and accepting new clients. One and five year retention rates, non-institutional discretionary and/or non-discretionary client assets administered, number of client households served and education and professional designations are criteria that is considered. This award is bestowed by an independent third party organization not affiliated with Raymond James.

EU Makes History by Setting Negative Interest Rates

 Some of you may have seen headlines recently regarding the European Central Bank’s (ECB) move to set interest rates on deposits from 0% to -.10%.   This is the first time in history that a major global central bank has made a move like this.  It’s important to note that this negative interest rate does not directly apply to customers of EU banks who deposit their money in savings and checking accounts.  The ECB is only applying this negative interest rate on deposits that banks make with the ECB.  In other words, the ECB is trying to penalize banks for parking large sums of money with the central bank, rather than lending it to consumers.   

Why set negative interest rates?

What is the ECB hoping to accomplish?  To answer this question I need to provide a little background on what’s been going on lately in the European economy.  The European Union (EU) has been going through a period of disinflation lately and there is much worry that it may fall into deflation. Disinflation is a slowing in the rate of inflation.  In the instance of the EU, the central bank estimates that increases in the general prices of goods and services has slowed over the last 12 months from 1.6% to .49% (as of May of 2014). If this trend continues, the ECB worries that deflation could set in, which is a general decrease in the price of goods and services.

What’s so bad about deflation?

Now this might not sound bad to many readers. After all, if the price of gas goes from $3.80 down to $2.80 that’s great, right? However, if companies aren’t making as much money on their products, they have to cut costs elsewhere in order to maintain the bottom line, and that ultimately means lower wages for workers. Which means less discretionary income to spend and the economy can get caught in a deflationary trap that can be hard to get out of.  

The hope is that setting a negative interest rate will stimulate lending and therefore growth in the economy. This could lead to slightly increasing inflation, which most experts agree is a better option over the long term than deflation. Will it work?  Experts are divided on how effective this monetary policy will ultimately be on the European economy, but like many things, only time will tell. 

Matthew Trujillo, CFP®, is a Registered Support Associate at Center for Financial Planning, Inc. Matt currently assists Center planners and clients, and is a contributor to Money Centered.

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C14-022059

Is Retirement Too Late to Find a Financial Planner?

Let’s say you are approaching retirement or you have already taken the plunge. Let’s also say you have not worked with a financial planner along the way. Is there a reason to consider forming a relationship at this stage of the game? 

Even at this stage in life, it may help to seek out a financial planner to be a thinking partner leading up to and along your retirement journey. But finding the right fit may not be easy. A successful financial planning engagement starts with you figuring out what is most important.  Details about your money are equally as important when put in context with your envisioned life. 

Here are two steps that will help you pull together your overall financial picture:

1. Create a financial plan: This will be a roadmap to help you see your financial picture in one coordinated view. 

• This plan is all about you, your priorities and needs.  The goal is to help you feel secure and at ease about your financial future.

• It will show you how you are currently invested and make suggestions for appropriate changes.

• Analyze how your investments could be working to supplement your income, either on a regular basis or as needs arise.

• Make sure that your estate plan is the way you want it. 

2. Consolidate: If your accounts are spread around with many different companies, it may come with a financial and organizational cost.

• With consolidation you can easily access all of your information in one place.

• You’ll simplify the ongoing paperwork you receive and streamline information gathering at tax time and when you must take required distributions.

• It provides more consistent management and ongoing monitoring in a cohesive framework.

Even if you have the individual areas of your finances under control, it is still important to pull all the pieces together.  Perhaps you have multiple IRA’s that too closely mirror each other, investments you have inherited that aren’t worked into your overall strategy, or your life circumstances have changed and your investments have not. 

The right fit might take some trial and error.  You don’t have to settle.  A financial planner that truly understands your financial story will be able to guide you to think about areas of your financial life you may not have considered up to this point. If you’re nearing, at, or past retirement and need help exploring your financial planning options, don’t hesitate to contact me about building a relationship and shaping your plan.

Laurie Renchik, CFP®, MBA is a Partner and Senior Financial Planner at Center for Financial Planning, Inc. In addition to working with women who are in the midst of a transition (career change, receiving an inheritance, losing a life partner, divorce or remarriage), Laurie works with clients who are planning for retirement. Laurie was named to the 2013 Five Star Wealth Managers list in Detroit Hour magazine, is a member of the Leadership Oakland Alumni Association and in addition to her frequent contributions to Money Centered, she manages and is a frequent contributor to Center Connections at The Center.

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 opinions are those of Center for Financial Planning, Inc. and not necessarily those of Raymond James. You should compare your current and prospective account features, including any fees and charges, before making consolidation decisions. This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. C14-022519

Catching up with our intern alum

 By the time an intern leaves at the end of the summer, it feels like we’re sending one of
our own back to college. It’s always hard to say good-bye but we love to brag about what they’ve
accomplished since interning with us.

Kyle Branda was part of our program in 2012 and 2013 and has since graduated. Kyle now works as a
Customer Claims Processor at Dart Container. While interning with us, Kyle says he was impressed
with how he was treated as a valued and respected coworker.

As an intern, not only do you have the opportunity to learn about financial planning, but there is also a focus on personal development. To me this speaks volumes about The Center. It shows that, not only do they care about what is currently going on, but they are also focused on the future and seeking to continually push one to improve.”

This fall Kyle begins his first year as a grad student at Grand Valley State University where he’ll
be pursuing a Masters of Science in Accounting.

Zach Gould interned with us in 2013 and went on to graduate from the University of South Carolina
in May. He majored in finance and international business. Zach is now a District Manager at Aldi
where he’s developing leadership skills and managing millions of dollars in business. Zach says his
summer at The Center really paid off.

Although I did not accept a position in the financial services industry, the experience I gained at The Center groomed my ability to interact with clients and my ability to independently think and solve problems, applicable skills across any industry."

Our intern coordinator Jaclyn Jackson is always looking forward to our next crop of interns. Help
us spread the word to qualified college students you know. Jaclyn can be reached by email
Jaclyn.Jackson@CenterFinPlan.com or you call our office for more information on internships at The Center.

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A14-022594

View from the Morningstar Conference

Nearly 2,000 people gathered at McCormack Place in Chicago this June.  The views of the Chicago skyline, while beautiful, were not the views I flew to Chicago to see.  Advisors, asset managers and press gather once a year at this conference to listen to some of the greatest minds in investing share their views of the markets and economies around the world.  This is one of my favorite conferences of the year. 

We heard from legendary investors including Michael Hasenstab, PIMCO's Bill Gross a.k.a. The Bond King, and AQR's Cliff Asness a.k.a. The Father of Momentum Investing.

Bill Gross: The New Neutral

Keynote speaker, 70-year-old Bill Gross did not disappoint.   Very aware that his image has been dinged in recent months with the departure of his heir apparent Mohammed El Erian, and subsequent departure of $50 billion of money flowing out of his flagship product, he took the stage wearing sunglasses and spent the first 10 minutes of his speech poking fun at himself while jokingly trying to brainwash the crowd and press Manchurian Candidate style.  All fun aside, he came to the conference to coin a new phrase the “New Neutral".  He is encouraging investors to look at interest rates from a different, more muted perspective.  What does this mean for investors?  Overall lower return expectations going forward for stocks and bonds.  This is an extension of PIMCO’s 2009 “New Normal” which stated that economic growth will be sluggish as it has been.

Employment Outlook: Labor Shortages?

Bob Johnson, Morningstar's very own economist, predicted that next summer at this conference the hot topic of discussion will be labor shortages.  He explained that the unemployment rate remains high despite the extremely large amount of open requisitions for new job postings.  He argues that there is a mismatch in job skills causing the unemployment rate to stagnate despite companies needing to hire so many.  He goes on to explain that the Federal Reserve cannot fix this skill mismatch, only the private sector, corporations and individuals, can acquire the necessary skills needed to match people to the needed job openings.

International Opportunities

Emerging markets and Japan were hot topics of discussion.  "Go anywhere" Investment managers, with the world as their oyster, prefer to access emerging markets through companies domiciled in developed markets that derive most of their revenues by selling to emerging market consumers.  Japan was a hotly debated topic, with about half of the experts loving it and half not wanting to touch it with a 10-foot pole.

In addition to these larger investing and macro-economic themes, I also find value in speaking directly with portfolio managers about their investing processes and trying to discover new strategies that may be beneficial to our clients’ portfolios.  There is never a shortage of ideas after a few days spent at Morningstar listening and learning!

Angela Palacios, CFP®is the Portfolio Manager at Center for Financial Planning, Inc. Angela specializes in Investment and Macro economic research. She is a frequent contributor to Money Centered as well asinvestment updates at The Center.

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Please note that international investing involves special risks, including currency fluctuations, different financial accounting standards, and possible political and economic volatility. Investing in emerging markets can be riskier than investing in well-established foreign markets. Investing involves risk and investors may incur a profit or a loss. Bob Johnson, Michael Hasenstab, Bill Gross, Cliff Asness are independent of Raymond James. Any opinions are those named herein and not necessarily those of RJFS or Raymond James.