Nicole Julien

Saving For College – 529 Planning Options

/in /by

By: Philip Clinkscales

05/17/2019

A 529 plan gives parents, grandparents, and others a vehicle in which to save funds for college, invest those funds, and receive possible tax-free treatment of all gains, dividends, and interest. Some states offer incentives such as tax deductions or tax credits for contributions to their 529 plans. While both federal and state taxing authorities promote these plans, their treatment of contributions or distributions may not always align. Depending on the state, the newly added K-12 tuition qualified education expense may not prove quite as valuable as initially thought.

Contributions

The federal contribution limitation lines up with the annual gift tax exclusion of $15,000. This exclusion allows gifts up to the exclusion amount from a donor without paying gift tax or using your lifetime exemption. There are other nuances like the five year gift tax averaging that allows for super funding a 529 plan, but this limitation also coordinates with the annual gift tax exclusion.

As mentioned above, many states promote contributions through tax incentives. Georgia, for example, allows a tax deduction up to $2000 for single filers ($4000 for joint filers) per beneficiary per year. Each state is different.

Distributions

The investments in a 529 plan grow and cash distributes tax free if distributions are spent on qualified educational expenses either directly or through reimbursement. Qualified educational expenses include tuition, fees, books, supplies, equipment, computers (added in 2015), and sometimes room and board. Non-qualified distributions are “discouraged” similar to an early IRA distribution. Both incur a 10% penalty and income taxes on any growth distributed.

Conclusion

There are many factors to consider in any planning decision, but all things being equal, a 529 should still be used for qualified higher education costs (college). The 2 main reasons are:

1) The primary benefit to 529s remains the possible tax free growth especially over longer periods of time due to compounding returns. Contributions in the plan for a short term with little or no growth and used to pay for K-12 tuition leave the state tax deduction as the only possible substantive benefit. This can be slightly more advantageous than paying directly.

2) The state may not actually allow spending on K-12 tuition without making one pay income tax or a penalty, so please check with a tax advisor to confirm state distribution qualifications before writing the check.

Generally, one would want to contribute more funds to a 529 early in the beneficiary’s life, maximize any state incentives in continuing years, earn strong positive returns on the investments, spend the funds late in the beneficiary’s educational career rather than early, and, if you live in Georgia with multiple children like myself, hope that the beneficiary receives the Zell Miller scholarship!

Ross Bramwell
Nicole Julien

Did You Stick To Your Plan During The Last Correction?

/in /by

By: Ross Bramwell

05/10/2019

The S&P 500 fully recovered from its fourth quarter market correction last week and reached a new high. The recent recovery took only four months, which is precisely the historical average for recoveries after stock market corrections.

This is a good reminder that a large part of investing is emotional and behavioral. Although we know we need to be patient, it is often hard not to dwell on short-term performance and to block out the noise. When we’re able to do so we are in a much better position to stay invested, stay on track with our financial plan, and achieve our long-term goals. As the saying goes, the only way to achieve long-term returns is to stay invested for the long-term.

The market was able to recover this year as the recession that was so feared to be imminent, has yet to materialize. Inflation is tame, the Fed has paused on any future rate hikes, and wage growth continues to be positive. Even as last week’s surprise positive GDP reinforced, the U.S. economy continues to grow even if it is at a slower rate.

However, we acknowledge that risks are still out there. Although economic expansions do not end just due to age, we believe the economy is experiencing more late-cycle characteristics.  We expect market volatility to remain as a normal part of the investor experience. Markets are inherently choppy and volatile. We believe the best way to manage this is not to jump in and out based on emotions, but to main a diversified portfolio that expects a bumpy road ahead.

S&P 500 Reaches New Highs After Fourth Quarter Correction

Disclosures: The information reflects Homrich Berg’s views, opinions and analyses as of April 29, 2019 unless otherwise indicated, with no obligation to update. The information is provided for informational purposes only and does not constitute an offer to sell or a solicitation of an offer to buy any investment product. The information does not represent legal, tax, accounting or investment advice; recipients should consult their respective advisors regarding such matters. Certain of the information herein is based on third party sources believed to be reliable but which have not been independently verified. Certain of the information is forward-looking in nature and reflects Homrich Berg’s outlook and forecasts as of the date of the document and is not to be relied upon; actual results may differ materially. Past performance is not a guarantee or indicator of future results; inherent in any investment is the risk of loss.

Nicole Julien

HB Invests in UGA Charles Schwab Financial Planning Center

/in /by

ATLANTA – April 11, 2019 – Homrich Berg is excited to announce the opening of the Charles Schwab Financial Planning Center at the University of Georgia (UGA). The newly renovated building includes three client interview rooms, a state-of-the-art observation lab for students to conduct and record financial planning and tax filing sessions in, and additional office space for faculty and graduate students. This investment dramatically expands the space available for UGA’s financial planning program and will help students enhance their financial counseling skills.

“Homrich Berg knows the importance of hiring and developing experts in financial planning and investments to provide clients with the best possible advice,” said Andy Berg, co-founder and CEO. “My partners and I are thrilled to be able to invest in the next generation of advisors at UGA’s top ranked financial program.”

In February 1918, the UGA Division of Home Economics, later to become the College of Family and Consumer Sciences (FACS), was established. The college’s mission is to advance the well-being of individuals and families over their life span and strengthen communities through the generation and dissemination of knowledge, education of professionals, and provision of research-based programs.

“I could not be prouder of our faculty,” FACS Dean Linda Kirk Fox said. “They have remained steadfast in their commitment to creating a better world through financial literacy, service to community and sending out highly-skilled professionals for a growing industry. This collaboration with Schwab and our partner firms only strengthens that commitment.”

Robin Aiken
Nicole Julien

Tips For Charitable Giving

/in /by

By: Robin Aiken

05/03/2019

The end of the year is typically a popular time for charitable giving. For those of you that are charitably inclined, now would be a great time to consider making a charitable gift of appreciated stock given the run up we’ve had in the stock market since the beginning of 2019.

Why consider appreciated stock for a gift? Discuss with your advisor before writing a check to a charity. It usually makes sense to contribute appreciated stock to a charity if you own stocks that have appreciated in value and have been held by you for at least a year and a day. I hear many reasons why donors think this is a bad idea. The first one is “the charity does not want to deal with owning XYZ stock.” Unless a charity is very small, almost all of them are happy to take your direct stock gifts. Rest assured they are not going to hold your stock; they are likely going to sell it immediately as a tax-exempt charity and convert it to cash. Another excuse I hear is “but I really like XYZ stock and do not want to give it up or give up the dividend.” You do not have to give up your favorite stock – just take the cash that you were about to use to write a check to the charity and buy back the stock in the same amount on the day you gift it. You can keep owning that stock and receiving the dividends – but if you need to sell it for some reason later your taxable gain will not be as large.

Another gifting strategy to consider if you are over the age of 70.5 years old is to directly contribute your otherwise taxable required minimum distribution (RMD) from your IRA to a charity. Current laws allow this up to $100,000. This is an easy way to avoid taxation on the RMD and help your favorite charity.

What are other ways to be strategic about your giving? Donor Advised Funds are widely available at low cost custodians like Schwab or Fidelity or via local community foundations who offer expanded services to help donors. These are a way to “prepay” some of your future charitable giving in one year and get all of the tax benefit up front, something that matters even more now that the standard deduction is much higher. This can also be helpful if you happen to have a high income year when the charitable contributions are worth more in terms of tax savings. Let’s say you give $2,500 a year to your favorite charity and happen to earn a lot more income than usual this year. You could give $10,000 to a donor advised fund now and then ask the donor advised fund to give $2,500 a year to your favorite charity for the next four years. You get all of the tax deduction benefit this year (if your total deductions are high enough) while still making your routine gifts for the next four years.

Not every strategy works well for every individual. Figuring out whether to use your RMD or use a Donor Advised Fund or which stock to give are all things that your CPA and financial advisor can help you evaluate. Understanding your tax situation is very important if you are wealthier, because there are different rules for the deductibility of different types of gifts.

The most important tip of all is to step back and think about your values and why you are giving to begin with. If you have children think about getting them involved in the discussion so that they hear about your values and can begin to think about the importance of giving. Use online resources to check out the charities you are considering and think about how your gift will have an impact.

Todd-Hall
Nicole Julien

Freezing Your Child’s Credit

/in /by

By: Todd Hall

04/26/2019

Identity thieves are increasingly targeting children. One major reason for this disturbing trend is that criminal activity can go undetected for many years. Often it’s only later, when the child is a young adult and attempting to rent an apartment or get a credit card, that the identity theft is discovered. Another reason children are targeted is the fact that they don’t have any credit history, making them a blank slate for fraudsters to exploit.

Thankfully a new law that requires credit bureaus to offer credit freezes at no charge applies to children too. Unfortunately, the law does not require the credit bureaus to make the process easy. There are a few nuances in how each credit bureau works that are explored below.

The first step parents should take is to determine if a credit file exists for each of their children. If a fraudster is using your child’s social security number, this will very likely result in a credit file being established with the major credit bureaus. Therefore, if you can confirm that no report exists, then it is highly unlikely that your child is a victim. Generally speaking, there are only three reasons why a young child would have a credit file:

1) The child is listed as an authorized user on a parent’s credit card

2) A parent contacted the credit reporting agencies to establish a credit file (in order to immediately freeze it)

3) Someone is using the child’s Social Security number to commit fraud

The best place to start is with TransUnion because they have the easiest and fastest way to determine if your child has a credit file. All you need to do is enter your information and your child’s information here: www.transunion.com/credit-disputes/child-identity-theft-inquiry-form. After submitting the form, TransUnion will search their records to determine if any credit report exists. I did this with my oldest son (age 7), and I received a confirmation email within a couple hours letting me know that no credit report exists in their database that is tied to his Social Security number. I immediately tried my younger son’s info (age 4) and it took a few days to hear back, but the news was the same: no credit file exists.

The email response from TransUnion also included detailed instructions on how to freeze my sons’ credit. This process is basically the same for all of the credit bureaus. To freeze a child’s credit, you will need to send in copies of documents proving the identity of you and your child. In most cases this can be accomplished with copies of your drivers’ license, the child’s social security, and birth certificate. Unfortunately, Experian and Equifax also require these documents to even check their database to determine if a credit file exists.

All three agencies will accept copies of the necessary documents by mail. However, many parents are not comfortable with the idea of dropping copies of such sensitive documents into a mailbox. TransUnion also provides a fax option, which is likely to be the preferred method for most parents.

Experian instructions can be found here: https://www.experian.com/freeze/center.html

Equifax instructions can be found here: https://assets.equifax.com/assets/personal/Minor_Freeze_Request_Form.pdf

The process can seem daunting at first, but once the credit freeze is in place it will stay in place until it is removed. This is the most effective step you can take to protect your children from becoming a victim of identity theft.

Patrick-McGonigle
Nicole Julien

Financial Planning For Law Partners

/in /by

By: Patrick McGonigle

04/11/2019

It is difficult to manage a successful practice while balancing family obligations and maintaining focus on your financial plan. As a partner of a law firm, you are an owner of the business which presents a unique set of financial challenges as well as opportunities. With proper planning, you can generate significant savings and, ultimately, build wealth at a much faster rate.

Cash Flow. Because most law partners cannot accurately predict their earnings in any year, it is critical to maintain cash-based investments to withstand periods of fluctuating or reduced income. The need to maintain short-term reserves can impede your ability to systematically save for retirement, children’s educations, and other financial goals.

Taxes. As an equity partner in a law firm, income is reported on a Form K-1 (instead of a W-2) and is subject to self-employment taxes of 15.3% on the first $132,900 of net income plus an additional 2.9% on the net income over $132,900. Some taxpayers may be required to pay an additional Medicare tax of 0.9% if their income is above a certain limit based on their filing status ($250,000 for joint filers and $200,000 for single). These limits are for 2019 and subject to change annually. Since taxes are not withheld from distributions, you are required to make estimated tax payments; and because law firms do not distribute profits evenly throughout the year, you may need to make estimated payments of varying amounts throughout the year. Coordinating these payments with a tax professional can help avoid potentially substantial under/late payment penalties.

The increase in mergers and acquisitions coupled with states’ increased focus on capturing tax revenue means more partners working in firms in multiple states, which may require partners to file returns in multiple states. Partners should work closely with their tax advisor to determine whether filing individual state returns versus a composite state return will minimize their tax liability.

Retirement Plans. In addition to traditional profit sharing plans, many law firms offer defined benefit plans and non-qualified deferred compensation plans. In 2019, most law firm partners are eligible to contribute up to $56,000 ($62,000 for individuals age 50 and over) to their firm’s qualified plans. If your firm offers a cash balance plan, it is possible for your eligible contribution to be in excess of $100,000. Typically, every dollar contributed is tax deductible so the after-tax cost can be as low as 50% of the total contribution. A firm’s retirement plan is likely the most effective tax shelter available. Maximizing the benefits of your retirement plans requires coordination of income tax, investments, cash flow, and estate planning. It is important to consider the financial planning and tax tradeoffs; the most successful balance of assets includes a mix of both retirement and after-tax assets for optimal flexibility in retirement.

Estate Planning. For established law partners who have contributed significant sums to their firms’ retirement plans, their plan balances may account for a significant portion of their net worth. Younger partners with minor children must also take care when naming beneficiaries. Retirement plan beneficiaries are too often an afterthought or overlooked all together and a mistake here can unravel your estate plan.

There are no one-size answers to the above, however, with careful planning you can maximize your firms’ benefits, reduce your tax liability, and reduce your stress on cash flow.

Paul-Ribes
Nicole Julien

Reshaping HB’s Commute Experience

/in /by

By: Paul Ribes

04/05/2019

In June 2018, Homrich Berg moved into a new custom-made office, perfectly fit for our collaborative culture and a centralized Atlanta location close to the majority of our clients and employees. As ideal as this location was, the building came with a new challenge: 117 seats and only 65 parking spaces in the building! To face this parking capacity issue, we knew we’d need to promote alternative forms of transportation. Fortunately, as part of our office location selection, we picked a building conveniently located right next to the Buckhead MARTA station. So, with the infrastructure there, all we needed to do was change the mindsets of our employees.

Our main goal with our alternative transportation push was not only to break the myth that public transportation was inferior with solid research and educational programs, but find a handful of internal champions who could clearly see the problems with driving to test out alternative transportation options. Having lived in the New York area and working around the world for a number of years, I know that public transportation is often the best form of transportation. Driving in Atlanta traffic is not only stressful, but entirely unpredictable day to day. In our education and comparative experiences, we asked everyone to focus on their QUALITY of time commuting: not driving with some of the most aggressive drivers in the country, being free to check emails on the train, time to prepare notes for an upcoming meeting, time to unwind after a long day, and even time for a nice short walk.

What started as solving a parking capacity issue turned into giving many of our employees a better way to get to work. The changes we made required a small group of energetic people to work out a better alternative, and then an investment in education campaigns and incentives to change. In every instance, the program results have been life changing for our employees, from a much less stressful alternative to Atlanta’s Fast and Furious driving experience to feeling happier having exposure to natural light in our new office space. When people are less stressed and happier, they like each other more and work better together, and that’s a very good thing for everyone!

Oh, and I almost forgot, everyone does have a parking spot!

Kevin Kraus
Nicole Julien

Your Safe Travel Cyber Checklist

/in /by

By: Kevin Kraus

03/29/2019

Do you have your summer travels planned yet? As you prepare for the fun part of summer travels, we want to remind you that while you’re away, cybercriminals will prey. Below is your safe travel cyber checklist.

Don’t use social media to advertise your travel plans. We maintain a strict policy with our kids when we travel that they are not allowed to post pictures, itineraries, or other travel related information on any social media site until we return from our trip. It is just too easy for cyber criminals to stalk social media and find out that you will be in South Africa for two weeks and use the opportunity to break into your home.

Be wary of public Wi-Fi. I am sure you are tired of continually hearing this, but I find it continues to be violated especially when overseas. Remember, the hotel’s Wi-Fi, Starbucks, or any other public Wi-Fi is not safe. I would recommend you sign up for your phone carrier’s travel plan and only use your phone’s personal Hot-Spot. If you must use any external network while traveling, do not ever log-in to check your bank or brokerage balances (including PayPal) or log into any other financially sensitive site. If you mistakenly do, be sure to change log-in names and passwords immediately.

Watch where you get your cash. Here again, the risk seems to be greater overseas although ATM thieves are getting increasingly more brazen here in the States. An ATM machine is a great place for identity thieves to gain access to your banking information. We always recommend that you use a bank ATM whenever possible as they tend to be more secure. If traveling abroad, it is best to get some cash up front so you are not scrambling to get cash when arriving and make the mistake of using easily hacked ATM machines. Also, when traveling overseas, I maintain an account at a bank different from my regular bank where I will deposit enough cash to cover my expected cash needs while traveling and will only use that ATM card. If I get hacked, all that is “at risk” is the amount of cash I expected to need and not my entire checking and savings balance.

Turn off your home computer. Many of us might leave our computers on as a habit, but leaving it on makes the computer more susceptible to hacking.

Protect the home. We suggest you contact your home alarm provider to let them know the house will be vacant and ask if they offer a home encryption tool. You should also consider disconnecting the garage door opener and locking it manually to protect it from thieves who can easily break the code. Finally, unplug any devices which are connected to the internet.

Tricia Mulcare
Nicole Julien

Four Steps For The Suddenly Single Spouse Unsure About Finances

/in /by

By: Tricia Mulcare

03/21/2019

After a spouse passes away or a couple divorces, the “suddenly single” spouse may find the prospect of handling finances complicated and daunting. The financial industry is full of phrases and terminology that can be confusing, and oftentimes someone else was in charge of making the financial decisions for the family. Now is the time to take control of your finances by changing your mindset around money and ensuring you have the right systems in place. For those not sure where to start, here are four steps for the suddenly single spouse.

Step One: Understand the investments in your portfolio.

Do you have bonds? Stocks? Are the stocks domestic or international companies? What percentage of your portfolio is liquid and readily available versus tied up in longer term partnerships? Do you have a long-term financial plan? If so, what are your financial goals and objectives? What assumptions have been made regarding future income, expenses and rates of return? Does your portfolio reflect the needed “mix” to meet the rate of return assumptions and ultimately your goals and objectives?

If you are answering “no” or “I don’t know” or “slow down please” to the above questions, you can begin to take control by building a team of unbiased advisors. This entails adding financial experts, including a wealth manager and CPA, who can help you understand what you are looking at.

Step Two: Find the right advisor for you.

Financial planners are not one-size-fits-all, the term can apply to a wide variety of people or to digital services called robo-advisors. Some things to consider when choosing the right advisor for you include their qualifications and standards, services offered, and compensation models (commission based, fee-based, or fee-only). See our How to Select An Advisor page (https://homrichberg.com/resources/how-to-select-an-advisor/) for more questions to consider when selecting an advisor.

Be wary of the professional who does not encourage you to ask questions. As the decision maker, it’s important to ask as many questions as needed until you understand the general asset mix of your portfolio and are able to articulate your long-term financial plan. Similar to discussing a sick child with a pediatrician, no questions should remain unanswered when discussing finances with your financial team.

Step Three: Build your financial plan.

It’s time to reevaluate and consider your goals in the short-term, mid-term, and long-term. Short-term goals (0-3 years) might include building an emergency fund, or saving for a home improvement project. Mid-term goals (3-10 years) might include saving for a vehicle, major trip, or the purchase of a home. Finally, long-term goals (10 years or more), would include things like saving for retirement, or college.

Step Four: Freeze your credit.

Freezing your credit with all three major credit agencies (Equifax, Experian, and Transunion) prevents someone else from pretending to be you and opening credit accounts in your name without your knowledge. All three agencies should be contacted separately and will ask a series of identification questions. Once frozen, you will receive a PIN that should be stored in a very safe place as it will be required when you need to temporarily thaw your credit to apply for a loan or other line of credit.

These four simple steps will give you the confidence to take control of your financial future and allow you to maintain your financial independence.

Todd-Hall
Nicole Julien

The Benefits Of Having A Financial Advisor

/in /by

By: Todd Hall

03/15/2019

Multiple studies have shown that investors who seek the help of financial advisors often outperform their peers who choose to do it themselves. Below is a brief review of two studies that examined the benefits advisors bring to their clients.

One study by Aon Hewitt compared “do it yourself” investors to investors who were receiving some sort of guidance or help managing their investments. The study looked at a 10-year period that included the financial crisis of 2008 and the broader period of the late 2000s that is often referred to now as The Great Recession. They found that those who sought the advice of a financial advisor outperformed those who did not by 1.86% annually. Importantly, this difference was measured on a “net of fee” basis. The impact of financial advice became even more pronounced during the worst years of market turmoil. In 2009 and 2010 those who were relying on a financial advisor outperformed their “do it yourself” peers by 2.92% net of fees.

Another study that showed similar results was done by Vanguard. The Vanguard study called “Advisor Alpha” showed that investors with advisors outperformed their peers by 3% per year. The Vanguard study also sought to identify the reasons why. This study found that at least 50% of the difference in performance (or 1.5% per year, net of fees) can be explained by what they termed “behavioral coaching.” In other words, half of the increased performance had to do with investor behavior and not with investment selection.

These studies show that advisors can (and on average do) add substantial value net of fees. More importantly, though, these studies also show that much of this added value comes from helping clients take the emotions out of their financial decision making. Investors’ long term success often depends on the ability to take two dangerous emotions out of the picture: fear and greed. Think back to what it felt like during the financial crisis of 2008. There was a tremendous amount of fear. A decade before that, we had the “dot-com” boom during which investors kept seeing others around them getting rich from tech stocks, and there was a real fear of missing out. More recently we saw this on a smaller scale with Bitcoin.

History shows that it is most important to remove emotions like fear and greed at the very times when it is most difficult to do so. The research is clear that advisors help investors keep their emotions in check and their financial plans on track.

 

Resources:

https://www.barrons.com/articles/behavioral-alpha-the-true-power-of-financial-advice-1476396872

Aon Hewitt study: https://financialengines.com/~/media/files/financialengines-2014-help-report.pdf

Vanguard Study: https://personal.vanguard.com/pdf/ISGAA.pdf