Great news for savers! The IRS announced today that taxpayers will be able to contribute $19,500 for employees who participate in 401(k), 403(b), most 457 plans and the Federal Government’s Thrift Savings Plan, up from $19,000 in 2019.  The catchup contribution limit for employees age 50 and over who participate in these plans has increased from $6000 to $6500.  

The limitation regarding SIMPLE retirement accounts for 2020 is increased to $13,500, up from $13,000 for 2019.

The income ranges for determining eligibility to make deductible contributions to traditional Individual Retirement Arrangements (IRAs), to contribute to Roth IRAs and to claim the Saver’s Credit all increased for 2020.

Other highlights include.

• The annual additions limit for defined contribution plans increases to $57,000.
• The annual additions limit for defined benefit plans increases to $230,000.
• The annual compensation limit increases to $285,000.
• The Social Security Wage Base increases to $137,700.
• The compensation limit for determining who is a highly compensated employee increased for the first time in five years, and is now $130,000.

Taxpayers can deduct contributions to a traditional IRA if they meet certain conditions. If during the year either the taxpayer or his or her spouse was covered by a retirement plan at work, the deduction may be reduced, or phased out, until it is eliminated, depending on filing status and income. (If neither the taxpayer nor his or her spouse is covered by a retirement plan at work, the phase-outs of the deduction do not apply.) Here are the phase-out ranges for 2020:

• For single taxpayers covered by a workplace retirement plan, the phase-out range is $65,000 to $75,000, up from $64,000 to $74,000.
• For married couples filing jointly, where the spouse making the IRA contribution is covered by a workplace retirement plan, the phase-out range is $104,000 to $124,000, up from $103,000 to $123,000.
• For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple’s income is between $196,000 and $206,000, up from $193,000 and $203,000.
• For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000
  

The income phase-out range for taxpayers making contributions to a Roth IRA is $124,000 to $139,000 for singles and heads of household, up from $122,000 to $137,000. For married couples filing jointly, the income phase-out range is $196,000 to $206,000, up from $193,000 to $203,000. The phase-out range for a married individual filing a separate return who makes contributions to a Roth IRA is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.

The income limit for the Saver’s Credit (also known as the Retirement Savings Contributions Credit) for low- and moderate-income workers is $65,000 for married couples filing jointly, up from $64,000; $48,750 for heads of household, up from $48,000; and $32,500 for singles and married individuals filing separately, up from $32,000. 

The limit on annual contributions to an IRA remains unchanged at $6,000. The additional catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment and remains $1,000.

Details on these and other retirement-related cost-of-living adjustments for 2020 are in Notice 2019-59 (PDF), available on IRS.gov.

As the United States continues to offer more and more financial education in schools, colleges, workplaces, non-profits and government agencies, only ⅓ of states actually require students to take a personal finance course in high school.  Even more alarming is the fact that less than ⅓ of adults understand three basic financial literacy topics by age 40, even though most of these adults are making difficult financial decisions at a much younger age. We all know the key to staying healthy is eating well and exercise, but it’s just as important to be financially healthy.   Financial literacy is the key to financial health, lifelong stability and wealth. 

Here in Montgomery County, many of our middle school students are fortunate to be able to participate in Junior Achievement Finance Park®. Junior Achievement is the world’s largest organization dedicated to educating students in grades K-12 about financial literacy, work readiness, and entrepreneurship, reaching more than 8 million students in 100 countries worldwide. In MCPS, the program reaches over 12,000 students each year and has transitioned to a 7th grade lesson sequence and field trip to the state-of-the-art JA Finance Park immersive learning facility at Thomas Edison High School.  At JA Finance Park, students become “adults” for the day with a career, salary, credit score and financial obligations that they must balance. 

In addition, a few MCPS high schools offer an Academy of Finance Pathway. The Academy of Finance connect high school students with the world of financial services and personal finances.  The curriculum covers banking and credit, financial planning, global finance, securities, insurance, accounting and economics. 

Programs such as these are a great way of putting our children in a position for financial success, however, raising our children to be financially aware is not just the responsibility of our schools. Starting at a very early age, children should be educated about how finances work – from creating a budget to learning how to save money for emergencies, teaching them the financial skills necessary to become responsible and self-sufficient adults is essential for their life-long success.  Each family is unique with their approach to handling their own finances and what their expectations are, but there are a few common tasks and principles that can help young children achieve the necessary skills for a solid foundation.

1. Start with budget basics – Focusing on what money is coming in and what money is going out is key to making sure you don’t run out of money each month.  Creating a budget can also help you save for a big purchase and can develop the habit of putting money away for an emergency fund.  
2. Learn to live within your means – Creating realistic goal setting and understanding “wants” vs “needs are key to developing mindful money practices.
3. Build a solid credit score – Young adults need guidance in choosing their first credit card wisely as well as recognizing how to maintain a strong credit score.  This should include checking each credit statement thoroughly, paying off the balance monthly and understanding compound interest.
4. Earn while you learn – Becoming a smart investor also takes time and you don’t need to be an expert to grow your wealth.  Some important lessons in reaching financial independence include learning to pay yourself first, staying in for the long term and diversifying your risk.  
5. Be responsible and accountable – It’s important to let your kids make financial mistakes rather than always coming to their rescue when the stakes are low.  The only way our children will learn to become fully responsible and independent adults is to be given the opportunity to fail and pick themselves up without our help.  

Teaching your children about money at any age will take time and won’t always be easy.  If you want your children to know how to successfully manage their money and be financially responsible adults, you must take the time now to give them the tools they need. Modeling good financial behaviors when your children are young and keeping the lines of communication open when it comes to dealing with money will help continue to guide them on their life-long financial journey.  

According to a recent survey, over 80% of Americans never updated their W-4 after the 2018 TJCA, which made sweeping changes to the tax rates.  Those that never changed their withholdings may now be in a position of currently owing the IRS additional amounts, plus possible interest and penalties.  

In order to ensure that you don’t get hit with any IRS penalties in the future, it’s important to revisit your W-4 withholdings annually.  The information you file on your W-4 determines how much money you’ll owe, or get back, when you’re filing your taxes. If you withhold too little, you may owe the IRS come tax time. However, if you withhold too much, you could end up with a large refund, which means you’ve essentially given an interest-free loan to the government.

Start by using the IRS withholding calculator to determine the right amount for you to withhold. If your situation is complicated, or if you’re confused, you may also want to consult with an accountant.  In addition, you should also revisit the W-4 if you’ve had a major life changing event, such as having a child, getting married or divorced, or if your spouse dies.  Next, review what your current withholding is. If the numbers don’t match up, you’ll want to adjust your W-4, which you can do at any point during the year.  

As you revisit your W-4, it’s also important to keep in mind that the 2020 projected tax rate schedules.

The key to paying the right amount of tax is to update your W-4 regularly. You should revisit your W-4 whenever you have a major personal life change. As we have written in the past, the potential for both a tax bill and a tax refund should be zero, or close to it. However, if you count on a big tax refund every year, pay attention to your withholding because it directly impacts your refund.  You can adjust your W-4 at any time throughout the year, but if you do it later in the year, there will be less impact on your taxes for that year.

If you need any assistance with your taxes or updating your W-4, you should speak to a professional.  We are happy to provide you with CPA recommendations if you would like. As always, please reach out to us with any questions or comments you might have.    

JPMorgan Chase Chief Executive Jamie Dimon warned Tuesday a recession may be on the horizon thanks to the continuing trade tensions with China.

“Of course there’s a recession ahead,” Dimon said during a morning call with reporters after the bank announced its third-quarter earnings. “What we don’t know is if it’s going to happen soon.  As you can see in the chart below, we are currently in the longest period of economic expansion in the history of the US. 

However, according to a recent survey by bankrate.com 2 out of 5 Americans are not financially prepared for an economic downturn if it were to happen in the next 6 to 12 months.  This lack of readiness comes at a time when the American economy is full of uncertainty. The Fed has cut rates twice this year to cushion the economy and experts are betting that there might be another cut as well when the Fed meets again in 2 weeks.

 

So, what can you do to make sure you are prepared for a recession if it were to happen?

 

First, you should pay off high-interest debts and boost your emergency savings. An emergency fund is key if an economic downturn leaves you strapped for cash or a potential loss of income.  Americans should also cut down on overall spending. You might want to consider having funds automatically put into a savings account from each paycheck.  

 

As to be expected, those with higher incomes feel more secure about their financial position if a recession were to occur.  Those that are more comfortable financially have the ability to look ahead and tend to be more goal-oriented. Typically, those that can pay their bills without much concern also have the ability to be more mindful of their spending and can build their savings funds to better prepare in the event of a job loss or other emergency.

 

For those living paycheck-to-paycheck, it is much more difficult to prepare for a downturn.  At a minimum, limiting any “wants” and putting aside even an extra $1 a day can be helpful is starting to build that emergency fund.  

 

Having a strong financial mindset is the most important factor in trying to save for an economic downfall.  You should limit what you spend and control what you save. Being proactive about your money, instead of reactive, will put you in a better position to prepare for downside risk. 

 

I can’t tell you when the next recession will happen with any accuracy. Neither can the TV pundits or even the best economists. But we know that it will happen again. Real businesses will fail. Start with a plan based on your individual situation, prioritizing the following things:

• Building up emergency savings and paying off expensive debt
• Maximizing your professional value and prospects
• Allocating your portfolio based on your goals and not on how the market is doing right now

Your priorities and the plan you make will be unique to you. But once you put it into action, it should help you minimize the harm from a recession, bounce back quickly, and even grow your wealth. The simple act of putting a plan into action — giving yourself something to do — will improve your prospects of coming out of the next recession unscathed.

According to a recent survey, money is one of the most common reasons for both sleep loss and divorce. Financial stress not only leads to anxiety for many, but is also one of the key factors that can lead to conflicts in a relationship. Finding alignment on money matters should be a top priority in any serious relationship (and may help you sleep better at night as well!), but many struggle with finding ways to have these important conversations. Here are five money-related issues that anyone in a long-term relationship should avoid:

1. Financial Infidelity – Dishonesty about money issues is a very common problem and is a key factor in ending a relationship. Whether lying about purchases or hiding massive credit card debt, holding back on financial information is lead to massive trust issues in any relationship. Partners should find a way to talk openly about their financial situation before it leads to problems in the future.

2. Being too controlling or judgmental – Feeling like your significant other is stopping you from buying things you want can often lead to serious problems in a relationship. It is helpful to decide on an amount of money that each partner can spend with no questions asked and don’t judge the things your partner might want to purchase. Make this amount something that works within the budget of your relationship so it doesn’t lead to further issues down the line.

3. Not talking about your finances regularly – Talking money might often lead to arguments, but it’s imperative not to avoid these conversations. These discussions should be about budgeting, setting joint financial goals and finding ways to agree on what to spend and save.

4. Refusing to Compromise – Both partners in a relationship need to realize they might not always get their way when it comes to money. You should continue to discuss financial matters until you can come to an agreement on something that works for BOTH.

5. Failing to Set Joint Financial Goals – It is extremely important for couples to set financial goals that they both agree on. If you are both in agreement on what your needs/wants are, then there is less likely to be an issue when it comes to deciding what to spend money on.

The keys to successful relationships regarding financial issues are transparency, setting clear goals and compromise. Keeping the conversations flowing regarding money matters is integral to a healthy relationship. As relationships continue to change and evolve, it’s important to continue to have these discussions in an ongoing fashion. Keep experimenting with different methods until you find one that works best for you and your significant other and remember to always try to keep an open mind. These discussions might just be the key to a better night’s sleep AND a more successful and happier relationship.

https://www.youtube.com/watch?v=iYNTKWSX2oM&feature=youtu.be

The Certified Financial Planner Board of Standards Inc. (CFP) states that their new fiduciary standards will be delayed, pushing the enforcement of these important ethics back to June 30, 2020. With this news comes questions about the quality of service people can expect from those handling their money, and what this all means to them in the long run.

The CFP started reviewing their standards almost four years ago, in an effort to identify areas for improvement. Their code of ethics and standards of conduct, which were approved last year, require that all CFPs and brokers act in the best interests of their clients when providing financial advice. This is in contrast to the established set of standards that only required client advocacy with regards to their financial planning. With the current rule, if a CFP is not providing elements of financial planning, then they do not need to place their clients’ interests ahead of their own. It can come as a shock to many that those tasked with handling their money are not necessarily obligated to act in the best interest of investing it.

When you start to appreciate the significance of these standards or lack thereof, you can see why the CFP’s decision to delay enforcement has many concerned. Currently, the CFP has 85,000 financial advisors certified under their current standards. When you factor in that many planners with a CFP designation have multiple clients with varying amounts of money under their management, you can start to see the magnitude of all this.

To be a fiduciary means to act in the best interest of your clients. To uphold the integrity of such a title means that there cannot be any motivation of profiteering off clients in the interest of personal gain. A fiduciary is always to provide advice which is in the best interest of their clients.

The world of finance can be a tricky landscape to negotiate. We use money every day, and it touches upon every aspect of our life, direct or indirect.

That in mind, it’s important to consider regulations that may seem distant to us at face-value, but do in fact have a genuine impact on our wellbeing. Consider all this when you assess who handles your money. Huge firms that employ many advisors with the CFP designation were in fact the ones pushing for the delayment of the new fiduciary standards, stating that many of them needed more time to make the necessary business adjustments. The fact that they must alter their business strategies in order to incorporate stricter fiduciary standards proves that they have not consistently been acting in their clients best interest all along. An independent financial planner has the advantage of weighing all the options available to their clients, without being mandated to sell internal financial products. It’s characteristics like this that uphold the definition of a fiduciary, and help maintain the integrity associated with the term. Always be sure to take the time to consider these important characteristics, so that your financial wellbeing has as much integrity as those who are handling it.

 

 

 

We hope everyone had a great Memorial Day Weekend filled with fun, sun and lots of good food and pool time.  We took our kids to Washington DC to pay respects and educate them on the brave men and women that lost their lives fighting for our freedom.  As parents, lots of the chatter we’ve heard this past Memorial Day weekend centered around our kids. Whether exhausted from all the spring sports (both physically and financially) or trying to figure out what to do with the kids this summer, many of us are all in the same boat.   For those of us that work full-time or part-time, it is necessary to find coverage for our kids during the summer without breaking the bank – certainly no easy feat! Most summer camps do offer before and after care, but it’s an at an additional cost after already paying the pricey sticker price of a week of camp. For those that have a parent that stays home with the kids, there is the question of “how much camp can we justify spending on” or “what activities can we do with our kids each week without spending a fortune?”  There are no right answers to these questions, but there are ways to help reduce the stress of the financial burden of summer break. First, making a family budget that includes setting aside money for whatever your summer plans are is a MUST, and don’t forget to include some vacation funds too. Another way to save is to browse sites like Living Social, Certifikid and Groupon for deals on summer camps and other activities. There are also many great free or inexpensive options through your local recreation departments – look into classes offered at nature centers, libraries and aquatic facilities. These things may not take the  financial stress out of summer, but with a little proactive planning, you might just be able to make the costs a little easier to swallow.

 

Another of the major kid/life stressors that was a topic of conversation this past weekend is the growing cost of keeping our kids involved in sports.  A new survey finds that 27% of “sports parents” are spending $500 or more each month on their children’s activities.  Even though most of us realize our kids aren’t likely going to be the next LeBron James or Tom Brady, we still want to give them every opportunity to succeed with any sport they might have interest in. Whether that means enrolling them in specialized pitching clinics or joining the club soccer team, the bottom line is that it means spending hundreds, if not thousands, each month in registration fees, uniforms and new equipment, not to mention the gas and wear & tear on our cars getting them to practice, tournaments and team-bonding events throughout the season.

A recent survey finds that sports parents spend twice as much time on their children’s activities than they do on financial planning. To keep money priorities straight, it is recommended that parents commit to a plan.  According to Dara Luber, senior manager of retirement at TD Ameritrade, you should “start by identifying your financial goals and creating savings buckets for each of them — your retirement, your children’s education, vacations and sports, to name a few. Be sure to fund those priorities in order of importance, putting your retirement first, Luber said. Then, have regular budget meetings with your family, so that your children understand the trade-offs of participating in costly sports programs, such as forgoing a family vacation.” There is nothing wrong with helping your son or daughter realize their sports dreams, but it definitely shouldn’t come at the expense of your own retirement or understate your family’s needs,” Luber said. (Read full article here

https://www.cnbc.com/2019/05/06/your-childs-sports-could-be-sabotaging-your-financial-health.html)

 

We all want to be able to provide every opportunity for our children to succeed in life, whether that comes in the form of sports, dance, art class or any other activity they have interest in. We’d also love to be able to send them to whatever camp they desire, for weeks on end, but that’s not always realistic either.   Before we spend more money than necessary on these types of things, we must be honest with ourselves with what our future goals are. Teaching our children the importance of saving over spending and wants vs. needs. will benefit everyone in the family. With some strategic planning, you might just be able to take the vacation of your dreams or send them to that special once in a lifetime camp that they’ve been begging for.