Archive for category: HUB Blog

Authority Magazine interviews CIO Stephanie Lang as part of a series on strong female finance leaders. Read the full Q&A here!

By: James White

01/28/2020

When it comes to retirement planning most of us think firstly of our 401k, Pension, and maybe our Roth IRA. However, many never consider saving for one of retirement’s biggest costs with the most tax-advantaged vehicle under the IRS code. Saving for healthcare costs with a Health Savings Account (HSA) can potentially be your retirement plan’s fortifying feature. Homrich Berg believes that after contributing to your 401k, up to the company match, the next best place for retirement savings could be in a HSA up to its limits for those who are eligible (more on eligibility below)… The following are four reasons your HSA can be more advantageous than other savings vehicles:

1. Increased Tax Benefits – HSA contributions are pre-tax, meaning they reduce your taxable income, they grow tax-free, and are distributed tax-free for eligible expenses. No other savings vehicle has as many tax advantages.
2. Medicare and Private Insurance Eligibility – your HSA can distribute assets tax-free to pay for Medicare, private healthcare insurance, and long term care insurance premiums during retirement.
3. Funding Unexpected Medical Bills – Under a 401k, for example, all distributions in retirement are taxed at Ordinary Income rates. The combined state and federal tax rate can be over 35% for some people. An unexpected $5,000 medical bill can require a withdrawal of $7,700 including taxes. If you have a funded HSA account, these withdrawals are tax-free, thereby reducing the gross amount of savings needed for unexpected distributions.
4. Penalty-Free Distributions Before Age 59 ½ — There are no penalties for early withdrawals in a HSA. In fact, you can contribute, receive credit for the pre-tax income deduction, and immediately distribute the contribution for an eligible healthcare cost. If 401k savings money were needed before age 59 ½ there would be a 10% penalty plus taxes.

You must be enrolled in a Qualified High Deductible Healthcare Plan in order to be eligible to make HSA contributions. In 2020, contribution maximums are $3,550 for single filers and $7,100 for those married filing jointly. If over the age of 55, you are allotted a catch-up contribution of an additional $1,000. Consult with your tax advisor or CPA regarding eligibility and appropriateness of this strategy. Some risks may include the inability to maintain tax-advantages for non-spouse beneficiaries, a 20% penalty and loss of tax advantages for non-qualified distributions, as well as limitations on investing HSA savings. Some accounts offer significantly more investment options than others, so be sure to ask your financial advisor which account is best for you.

By: Tana Gildea

01/22/2020

Most of us look to the new year as an opportunity to “start again,” clean up our bad habits, make big changes, and reach for the stars! We’ll exercise! Lose weight! Save more! And then Monday comes. It’s another start to another week that feels exactly like those that have come before it. The thrill of the promise crumbles when faced with the reality of packing a lunch, forgoing a latte, or passing up those great sales in favor of a workout.

According to James Clear (Atomic Habits), BJ Fogg (Tiny Habits), and Charles Duhigg (The Power of Habit), creating a habit is the clear path to lasting success regardless of what we are trying to change or improve in our lives. So what financial habit is the keystone habit? Track your spending.

When we work with clients, we occasionally help them create a pie chart called Live, Give, Owe, Grow, and Can’t Say No. It takes spending over some time period and divides it into these categories. By making a pie chart, everyone can see how the pie divides which can lead to some great discussions around how the client feels about where the money is going. That can be a great “look back” exercise to help you identify things you want to change. The categories should be those that are important for you but keep it to a few so as not to get overwhelmed.

Analyzing what happened provides some insight, but tracking problem areas “in the moment” is what creates awareness and change.

Here are some things to try:

• Track a particular category of spending.
  • Identify your problem area and track it. Eating out tends to be a trouble spot for a lot of people so, for example, every time you eat out, get in the habit of writing it down. This could be the notes section on your phone, a little notepad, or the back of an envelope in the sun visor of the car. Whatever works for you is the best tool. When you know that you are writing it down, you are being accountable to yourself and perhaps to your significant other.
  • It may be helpful to jot down the circumstances like “left lunch in the fridge” or “traveling” or “overslept and went through the drive-through.” You might see patterns of when the spending is happening. This helps you develop strategies to counter these situations.
• Learn from the data that you are collecting.
  • Have a spirit of curiosity and learning around what is happening instead of judgment and condemnation. We don’t thrive when we beat ourselves up mentally so seek understanding and solutions.
  • Don’t expect perfection! Developing a habit and changing behavior is a process and will have ups and downs.
  • Keep trying – knowing what doesn’t work helps us figure out what does work.
• Identify behavior triggers that lead to certain types of spending.
  • Duhigg describes the “habit cycle,” and it’s clear that a trigger leads to a behavior. If we can identify the trigger and replace the undesirable behavior with a different behavior, we can change a bad habit into a good one or at least a neutral one. For example, if a frantic day at the office triggers the desire for a fast food fix on the way home, recognize that, and create a new “if I have a frantic day at the office” behavior: “then I’ll go to the gym” or “then I’ll call a friend on the way home.”

Whatever financial goal you have will benefit from having a clear picture of where the money is going. The backward look helps you see what happened and identify what you want to change.  Tracking helps you be mindful and aware as it is happening or about to happen. Developing this one habit and looking at it with curiosity and interest can lead you toward a lot of ways to make small, consistent changes that will last long after the resolution has been forgotten.

ATLANTA – 1/10/2020 – Homrich Berg (HB) is pleased to announce the appointment of Michael (Mike) D. Landsberg, CPA, CFP®, CPWA, PFS, as the newest Principal for the firm. “Mike has consistently exhibited dedication to HB and his clients,” said Andy Berg, co-founder and CEO of Homrich Berg. “My partners and I are proud to welcome him as the newest owner of HB.”

Mike has been with Homrich Berg for over seven years, and holds a B.A. in Accountancy from the University of Notre Dame and went on to earn a Masters of Taxation from Arizona State University. Mike serves as a member of both the American Institute of Certified Public Accountants – Personal Financial Planning Division (AICPA PFP) and the Georgia Society of CPAs. He sits on the board of Ur Worth It! as Finance Chair and was selected to the AICPA PFP Executive Leadership Committee. He also volunteers as a Financial Coach for the Catholic Charities of Atlanta.

By Jaime Ruff and Todd Hall

December 23, 2019

Packaged with the recent spending bill was some of the most significant retirement plan legislation to come along in years. The Setting Every Community Up for Retirement Enhancement (SECURE) Act was signed into law in Friday December 20th, and will impact businesses and consumers in a number of ways. Here are five key takeaways

1. The End of the “Stretch IRA”… say hello to the new 10-Year Rule

Perhaps the most prominent change under the SECURE Act is that it creates a new 10-Year Rule for non-spouse beneficiaries of inherited IRAs. Most non-spouse beneficiaries who inherit a retirement account after 2019 will need to withdraw the entire account and pay any associated income taxes within 10 years, rather than over their life expectancy. This effectively ends what has colloquially become known as the “Stretch IRA”, since spreading the distributions from an inherited IRA over the life expectancy of the beneficiary potentially can defer those taxes for decades.

The 10-Year rule does not apply in the following situations:

• If the beneficiary is the spouse of the original IRA owner
• If the original IRA owner dies before January 1, 2020, in which case the beneficiaries are grandfathered under the old rules and can “stretch” the IRA over their life expectancy
• If the beneficiary qualifies for “eligible designated beneficiary” status under the SECURE Act, including heirs that are less than 10 years younger than the decedent, chronically ill individuals, disabled individuals, and minor children. Minor children will age out of the exclusion once they hit the age of majority in their state, typically 18 to 21. At that time, the 10-year required minimum distribution period would become applicable to any remaining balance in the inherited defined contribution plan or IRA. As such, minors will still be able to stretch out distributions slightly longer than other individuals.

Example…

Joe was 65 when he died in 2020. He had an IRA worth $500,000 and his designated beneficiary was his daughter Megan, age 40.

Under prior rules, Megan would have only have been required to take out a percentage of the IRA each year based on her life expectancy. The required minimum distribution or “RMD” would start around $15,000 in the first year and the percentage to withdraw would gradually rise until Megan turned 85 when the account would have to be empty. She thus could have “stretched” those distributions over 35 years and deferred the associated income taxes.

Now, if she wants, Megan won’t have to deal with an RMD at all during those first nine years. Instead she must empty the entire IRA balance within 10 years, which could bump her into a higher tax bracket pretty quickly. Notably, she has flexibility as to when within those 10 years to take her distributions, so perhaps she can time her distributions to coincide with years when her income will otherwise be lower.

 

In light of these changes many existing estate plans should be revisited.

The loss of potential decades of tax deferral further tips the scale in favor of considering charities rather than individuals as retirement account beneficiaries.

Things like Roth IRA conversions and multi-generational trusts are tools that will be useful in managing many wealthier families’ income tax brackets.

Use of a conduit trust as an IRA beneficiary may be a problem now. Under the previous Stretch IRA rules, trust distributions could be spread over the life expectancy of the beneficiary. Now with the IRA emptied within 10 years the funds will effectively be distributed outright to the trust beneficiary, thus negating the elements of the trust that were sought after.

 

2. Later Required Beginning Date for Retirement Distributions

On a positive note, if you were born on or after July 1, 1949 then you are not required to begin taking Required Minimum Distributions (RMDs) from your IRA until age 72, rather than 70½. If you’re already 70½ in 2019, the new rules won’t apply to you as you’ll have an RMD for 2019 that must be withdrawn by April 1, 2020. But if you were born after July 1, 1949 your required beginning date is postponed.

Those with birthdays in the first half of 2020 will benefit slightly more from this provision. For example, someone who turns 70 next spring (and 70½ next fall) won’t have to take distributions until 2022 when they turn 72 —two extra years than if the bill didn’t pass. But if someone is turning 70 next fall (and 70½ in the spring of 2021), they don’t have to take distributions until 2022 when they turn 72. That person gets just an extra year.

 

3. Contributions to Traditional IRAs Allowed After age 70

Another positive aspect of the legislation is in recognition of the fact that many more people are now working after age 70. Under the SECURE Act workers over age 70 can start making IRA contributions up to $7,000 per year (including the $1,000 catch-up contribution for workers over age 50). A nonworking spouse whose spouse earns income also can contribute.

 

4. Qualified Charitable Distributions Still Allowed Beginning at Age 70½

People who are 70½ or older still can make a Qualified Charitable Distribution (“QCD”) from their IRA to one or more charities, up to $100,000 in a given year. The SECURE Act does not change that popular tax break. The legislation does, however, introduce an anti-abuse provision to reduce the allowable QCD amount by any traditional IRA deduction received for that year.

 

5. Initiatives to Increase Employer Adoption of Retirement Plans

The new law increases the tax credit for small businesses to set up new retirement plans, from $500 to $5,000. It also creates a new tax credit of up to $500 per year to defray startup costs for new 401(k) plans and SIMPLE IRA plans that include automatic enrollment. Unaffiliated small employers are now able to band together to offer a 401(k) type of plan and shift some of the administrative burden to a retirement plan administrator. And starting in 2024, 401(k) plans will be required to allow employees who work more than 500 hours for three years to contribute.