Roth: To Convert Or Not To Convert

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Roth: to convert or not to convert. Converting to a Roth IRA might be worth consideration if you have been saving for retirement in a traditional IRA (TIRA)

As you may know, when it’s time to take the money out of your TIRA, you will owe tax on the amount you withdraw (called a “distribution”). So when you think of the balance in your TIRAs, give that number a haircut of 10% – 40% (using current tax rates) that will be sent to Uncle Sam.

Further, when you reach age 73 or 75 (depending on your birth year) whether you need money or not, you will be required to take an IRS-calculated required minimum distribution (RMD). The RMD income can push you into the next tax bracket or, more commonly, into a higher bracket for Medicare premium surcharges. Surcharges mean you could pay up to several hundred dollars more per month for Medicare.

Finally, if you are married and leave TIRAs to your spouse, he or she must eventually take RMDs. When they start filing as single the year after you die, there is a greater likelihood the RMD will push them into the higher income tax or Medicare surcharge brackets.

Review of Roth Advantages

Roth’s have several advantages over traditional retirement accounts (TRAs).

1) When you think of the balance in a Roth IRA, there is no tax haircut. Money in a Roth grows tax-free forever. That’s a bigger balance to spend on world cruises, grandchildren, or a Winnebago.

2) Your heirs will have to withdraw the Roth money if you don’t, but they won’t owe tax then, either.

3) Roths have no RMDs. So that might save you from Medicare surcharges and other additional taxes such as the Net Investment Income tax (NIIT).

4) If you are married and die before your spouse, your spouse will not have to take RMDs from them.

5) If you have a trust, it may be much more beneficial to leave a Roth to the trust than a TIRA. Ask your CPA or tax attorney about this one.

What’s the Catch with Roths?

What’s the catch? The amount of TIRA that you convert to a Roth gets taxed in the year you make the conversion. If you convert $100,000 this year, that’s $100,000 added to your income.

So if you are still working, and you convert some or all of your retirement money to a Roth, you will be paying tax on the converted amount at today’s tax rates, hoping/betting that the growth in the Roth will make the extra tax bite today worthwhile later.

For the hope/bet to have the best chance to work, a few things help:

– You expect to be in a the same or higher tax bracket after you quit working. Otherwise you could wait and pay less tax on the conversion at a lower tax bracket later.

– You don’t expect to need the money in the Roth for many years. To reap the biggest benefit, the Roth needs time to grow.

– You are ok taking more risk with money in the Roth. Since more risk means greater return over the long haul, more risk in the Roth helps to juice the tax-free growth for which you are aiming. Having Roth money sit in CDs or money markets isn’t going to reap the big benefits.

– You can pay the Roth conversion tax bill out of non-retirement money. Otherwise you might have to take an even larger distribution, which then creates higher income and even higher tax.

Have a Strategy

Because of the tax hit from a Roth conversion, one popular strategy is to wait to convert until you quit working, or otherwise experience a big drop in income, and take advantage of the lower-income year(s). The amount to convert is then carefully calculated each year to keep you out of higher tax brackets for both income taxes and Medicare.

This strategy works especially well if you are younger than 70, delay taking Social Security, and live off of already-taxed savings or investments. You may have a couple to several years where small incremental amounts are used to fill up a relatively low bracket. Over that time it’s possible to build up a nice-sized conversion amount in a Roth.

When NOT to Convert

Converting to a Roth may not be the best strategy if any of the following are true for you:

·        You have kids in or going to college over the next 2 to 6 years. The increased income from the conversion (beginning from 2 years prior to enrollment) will possibly increase the amount on the FAFSA (Federal student aid application) you would be expected to contribute toward tuition.

·        You plan on donating most or all of your RMDs to charity. You can do this tax-free anyway by making a Qualified Charitable Distribution (QCD) from IRAs (but not employer retirement plans) beginning at age 70 1/2. You can also count your QCD towards your RMD after age 72. No sense paying tax on the conversion when you’re going to do QCDs.

·        You expect to have high medical and/or long-term care expenses. These will offset the tax on your TRA distributions too. Like QCDs, there’s no sense paying tax on the conversion if you will have high deductions to offset future distributions.

Getting Help

Getting help to convert to a Roth is usually a good idea. The easiest system is to have a Roth at the same firm where you have a TRA. Usually you can make the conversion by doing a simple transfer between the two accounts. Find out how the firm will report the distribution and conversion on your tax records. When you have more than one firm involved, get detailed information from each firm about how to make the transfer show up on their tax records properly.

The next step is to pay the tax on the conversion. Firms may ask about withholding for taxes – this can get tricky to calculate, but in general, as mentioned above, you would want “0” withheld and then submit an estimated amount from your non-retirement funds as soon as possible.

Due to the large tax consequences typically involved with Roth conversions, it’s best to consult with a CPA, tax attorney, and/or CFP™ for more detailed advice. In some cases, the future savings and flexibility a Roth affords may be well worth some extra effort and expense today.

We love to talk taxes. Schedule a 30-minute call and let me know what questions you have: https://bit.ly/3GWZNrc

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Fall Planning Reminders Before You Click “Renew”

Fall planning reminders before you click “renew.”

When it comes to employer, private health, and Medicare benefits, it’s easy to simply renew last year’s choices.

However, it can be worth the extra time to look closely at all options, and how they might have changed.

“Research shows employees only spend 17 minutes electing their benefits, while Netflix users spend an average of 18 minutes deciding what to watch,” according to Kiplinger’s: http://bit.ly/Kiplingers-Benefits.

Under 65: Health Insurance

If you are under 65, check for HSA (Health Savings Account) eligibility on your policy. Contributing to a family HSA can save roughly $2000/year in taxes (depending on your marginal tax bracket). Plus, if you are relatively healthy and do not use the HSA, your earnings grow tax-free until retirement. Click here [https://www.hollydonaldsonfinancialplanner.com/hsas-over-iras/] for the reasons why HSA’s beat IRA’s as retirement accounts.

HSA eligibility, unlike IRA eligibility, is not dependent upon having earned income. The last year you can contribute to an HSA is the year before you turn 65.

65 or Over: Medicare

If you are 65 or over, your first opportunity to enroll begins 3 months before you turn 65 and continues until 3 months after, unless you are still employed. Sign up for Part B at the first opportunity (after leaving your employer), otherwise your premiums increase 8% – 10% per year.

Enrollment for existing Medicare beneficiaries runs from October 15 – December 7.

If you are on prescriptions, the formulary – the list of drugs that Part D covers – might have changed. Make sure your prescriptions will still be covered. Stories abound of huge jumps in co-pays after January 1. At www.medicare.gov, you can input your prescriptions and the site will advise you which Part D plan covers the meds you need.

Long-Term Care Insurance

Group long-term care offerings through employers are becoming a benefit of the past. Private policies can be bought with better coverage, but premiums are increasing. If you are at least 40 and have access to a group policy, strongly consider enrollment. Most group policies are portable if you leave the employer. Also consider shopping your group coverage against a private policy.

Long-Term Disability

The younger you are, and the more education you have, then the more likely that your potential earnings capacity over your lifetime, known as your “human capital,” is your biggest financial asset. Protect it with LTD coverage.

We are all more likely to be disabled than to die. Most employers provide short-term disability for 90 days.

Long-term disability coverage, if offered, varies from 40% to 80% of compensation until age 65. Some employers provide the opportunity to purchase supplemental coverage; others don’t.

Finally, check whether you are covered for “own-occupation” or “any-occupation.”

Group Life Insurance

Many employers provide one year’s salary as a default for group life insurance, with the option to purchase more for the employee or the employee’s spouse or domestic partner. It’s usually a good deal.

If you didn’t sign up at your initial enrollment, you may need to submit to a paramedic exam if you request more coverage.

Employer Stock Options/Restricted Stock Purchases

The most common error among holders of options and restricted stock is concentration of investments, and future earnings, in that employer. This is usually because those employees own employer stock outright, plus options, plus more stock in a retirement plan through a company match. That’s a lot of eggs in one basket.

You may be highly satisfied with the company’s potential.  (So were Enron employees.) Stuff happens. Before making major moves, consult a CPA or CFP. Employer stock decisions can have major tax consequences.

These are just a few of several benefits options commonly found with larger employers. Walking through elections with your financial planner is a good idea at enrollment time. Make a special appointment to do so in advance of the holiday crunch. (Book a 90-minute planning appointment for a Financial Checkup direct at: https://go.oncehub.com/HollyDMeetings)

For questions about planning services, pick the best time for Holly to call you: https://go.oncehub.com/hollypthomas.

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5 Myths about 401(K) Rollovers: What’s the Rush?

5 myths about 401(K) rollovers: Should 401Ks (or 403bs, 457s, or TSPs) always be rolled over? Often, soon-to-be retirees are led to believe their impending retirement forces a deadline or urgency to “do something” about their retirement plan account. 

Several understandable myths surround the mystery of what actually happens to your money when leaving your employer. Below are five of them.

Myth 1: When you separate from your employer, you must take your retirement plan account (401K/403B/457/TSP) with you.

Actually very few employer plans require employees to leave the plan upon retirement. You have a choice to leave the account right where it is. 

This includes if you are widowed and your spouse was the employee. More than likely, you can stay with the retirement plan if you want to.

The rules for your employer can be verified by checking with your human resources department, or obtaining a copy of your plan’s complete document, usually available at your account’s website.

Myth 2: When you separate from your employer, it’s always best to take your retirement plan account with you.

Some people might not have the greatest level of fondness for their employer and want to sever ties with anything having to do with the company. While understandable, it’s important to separate facts from feelings about your money. 

Due to tighter ERISA and Department of Labor regulations, it’s very unwise for employers to have their employees’ retirement plan limited to only high-fee, high-risk, or self-serving fund options. Chances are that what’s available there is worth taking a more in-depth look.

On the question of where you are best served with your retirement funds, here is where you will get a wide range of answers. You can ask friends, family, the internet, co-workers, and even ChatGPT and go in circles.

Whether rolling over your retirement plan account is in your best interest depends on a few different factors. Keep reading to myths 3, 4, and 5 to find out more.

Myth 3: Retirement plan accounts have no impact on the ability to do a Roth conversion.

False. This particularly applies to people who have IRAs outside of their employer retirement plan. If you are considering converting part of an IRA you already own outside of a retirement plan to a Roth, the amount you can convert is subject to an arcane concept called the “pro-rata rule.” 

In general, under this rule, the amount you can convert is subject to a ratio that includes all IRAs, but does not include monies in employer retirement plans.

Therefore, if you roll over your retirement plan before doing a Roth conversion, you will likely limit the amount of outside IRAs you can convert. For many people retiring in their 60s and delaying Social Security, Roth conversion opportunities abound. It might very well make sense to wait to roll over at least until age 70 so that you can leave the Roth conversion option more open.

Conversely, if all of your retirement money is in the employer retirement plan and you are considering Roth conversions, then a total or partial rollover might make sense in order to then accomplish a “Back-Door Roth.”

If Roth conversions are something you are considering, it’s imperative to talk to a tax professional first before doing any rollovers, and before doing any Roth conversions.

Myth 4: Qualified Charitable Distributions (QCDs) can be made directly from a retirement plan account.

False. Qualified charitable distributions are distributions made directly from an IRA to a charity by anyone over age 70 1/2. They can only be made from IRAs, not employer retirement plans.

The reason to make a QCD is to reduce the taxability of IRA distributions. QCDs work very well for people over 70 1/2 who already have the intention and ability to give to charity, but are not able to itemize their charitable deductions.

If this is you, then you may indeed want to roll over your employer retirement plan account to an IRA so that you can accomplish QCDs from the rollover IRA. But if you’re a few years away from age 70 1/2, there’s no hurry.

Myth 5: Any investment options that you have in your retirement plan, you can also get in a rollover IRA or annuity.

False again. Some employer retirement plans offer institutional shares (often seen as “I” “R” “Y” or “Q” shares) of mutual funds, which have lower fees inside them. The minimum investment for many institutional shares is $1,000,000. Thus, the only way to access them for most retirement plan participants is to be in the plan, where your purchasing power is aggregated with other employees and retirees. Once you roll out of the plan, you may not have institutional shares available. Instead you might be limited to higher fee options common with the retail shares of funds.

Another type of fund only offered in employer retirement plans are stable value funds. Although not FDIC-insured, they are principal-guaranteed by an insurance company and generally pay a more competitive rate of interest. In some market environments a stable value fund makes a good substitute option for a short-term bond fund because it has the guaranteed principal and generally pays more than a money market fund (though not always). Nevertheless, by leaving the plan behind, this important option might be left behind, as well.

In short, rolling over your 401K is rarely a time-sensitive decision. Most people have enough going on already at a time of life transition. Take your time to talk to professionals who have no conflict of interest in advising you which way to go. For a decision this big, there’s no need to rush.

If you can relate to anything in this post and would like to talk more, we would love to listen. Schedule a call with Holly here: Contact.

Continue Reading5 Myths about 401(K) Rollovers: What’s the Rush?

You Might Want a Trust If….

Trust Legal documents

You might want a trust if….

“Do I need a trust?” Although it’s a legal question, it’s frequently asked of financial advisors. What do they say? 

  • “Hey, I’m not an attorney,” is one possible—but maybe not the most helpful—answer. 
  • “Hey, I’m not an attorney, but I can play one,” may be polite, but inadvisable. 
  • “That’s interesting you bring that up. I’m curious how you heard about trusts.” This reply seems a little better. It keeps the focus on the questioner, and it’s pretty safe legally. 

Pros and Cons of Trusts 

Answers people may give for curiosity about trusts range from, “I dunno,” to citations of articles, websites, conversations with friends, family members, or even an estate planning attorney. All of the mixed messages about them can get pretty confusing. 

For some people, trusts are a mysterious-yet-evil domain of the ultra-rich. This belief isn’t surprising. When was the last time you saw positive media coverage of a trust? It typically pops up when a billionaire’s “trust fund baby” is arrested. 

There are dozens of kinds of trusts. For this post, “trust” means a revocable living trust. They tend to be the most common and relevant. 

Trusts aren’t for everyone. They are costly to set up. Some people have difficulty implementing and maintaining them. They are powerful. Scary powerful, sometimes.

Rather than answering, “Do I need a trust?” directly, I prefer to channel comedian Jeff Foxworthy’s famous phrase, “You might be a redneck if …” (anyone under 40 may have to look him up). It seems to help people discover for themselves whether a trust might be useful.

7 Reasons You Might Want a Trust

1. If you own property in more than one state or country, you might want a trust.

Trusts avoid probate—if drafted, executed, and implemented properly. Property in two states/countries means probate in two states/countries. In many states, probate attorneys charge a percentage of the probated asset value. Dollars spent now on a trust could seem small compared to the dollars spent on lawyers and court fees in two places later.

2. If you are concerned about a grown child’s ability to handle money, you might want a trust.

A child gets the money with no strings attached if left through a joint account, will, payable-on-death (POD) designation, or beneficiary designation. Trusts let you build strings. One common example is to pay one-third of principal at age 30, one-third at age 35, and the remainder at age 40. As your family ages and changes, you can revise trust provisions like these. Revocable living trusts are amendable.

3. If you have a concern about a child’s current marriage, you might want a trust.

Trusts can be written so that inherited assets can be protected in a divorce. Assets inherited other ways, especially if commingled with other marital assets, can be harder to protect.

4. If you have a concern about a child’s future marriage, you might want a trust.

Trust provisions can be written for future spouses, too.

5. If you aren’t as concerned about dying so much as living a long time with chronic illness or dementia, you might want a trust.

What happens if you’re unable to manage your finances? People often don’t consider that a will only applies upon death. That’s why they should have a power of attorney (POA). Although much work has been done to get institutional agreement on POAs, your designated POA person might still face a custodian, attorney, or title company who won’t recognize it, or who at least gives your person a hard time about it.

If an asset is in a trust, your person—the trustee or co-trustee—generally faces fewer roadblocks than with the POA.

6. If you are in a second (or more) marriage and have children from a previous one, you might want a trust.

Let’s say you both agree that the spouse gets the house, but the kids get the money you brought to the marriage. With a will and beneficiary designations, this basic idea can be accomplished. Sometimes life (and death) work out that simply. Yet sometimes they don’t. (See points 4 and 5.)

It’s possible your spouse could be left without enough money to live in the house, or the kids could be left with nothing. If either of those scenarios bothers you, a trust can allow for changing circumstances as you both age.

7. If you are concerned about a loved one’s vulnerability in their time of grief, you might want a trust.

Probate is public. If you’ve ever known someone who has been through it, then you are familiar with the annoying phone calls and direct mail received after losing someone. If you haven’t, you might be shocked to know that … people troll public records.

Some trolls, I mean, people, especially like the records that declare which investment account(s) and which beach condo go to whom. Then, out of the goodness of their hearts, they find the grieving loved one and offer to provide assistance and support in their time of need. (Ahem.)

Unlike probate, transferring property through a trust happens privately.

Ask Your Attorney

In summary, these are only seven of several reasons you might want a trust. But the best person to ask is a board-certified estate planning attorney. Find one through your local estate planning council (www.naepc.org) or ask your financial advisor for references.

For a simple list of 25 steps to complete for estate planning, click here.

For monthly tips on managing your money in retirement, taxes, and typical snafus, subscribe to the award-winning e-letter, “The View From the Porch.”

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Florida’s Sales Tax Holidays

Florida’s sales tax holidays. Florida sales tax runs anywhere from 6% to 8%, depending upon the county where you are making the purchase. Several years ago the Florida legislature started sales tax “holidays,” beginning with the back-to-school season.

Flush with a budget surplus again this year, the legislature passed several more holidays which begin in May. Some of them last a week, while others last up to 2 years. For a major purchase you might be considering, it pays to know the timetables.

Disaster Preparedness: June 1 – 14 and August 24 – September 6

There has been an annual sales tax holiday for disaster preparedness for a few years now. If you are in or near Florida, and getting low on batteries, bungee cords, coolers, tarps, portable generator(s?), or several other items listed in the link below, you can save the sales tax by waiting until the week of the holiday to stock up.

The second sales tax holiday in late August occurs right before the busiest part of hurricane season.

Of note, the holiday includes all kinds of pet provisions – pet food, pet kennels, pet beds, leashes, and even pet waste disposal bags.

Also new last yaer, consumable household goods like paper goods, soap, hand sanitizer, and trash bags.

Here is the link to the list of exempted disaster preparedness items: https://floridarevenue.com/taxes/tips/Documents/TIP_24A01-04.pdf

Big Deal – Home Hardening Disaster Preparedness: July 1, 2022 – June 30, 2024

This one is a bigger deal and can save major bucks. Impact-resistant windows, doors, and garage doors will be fully exempt from sales tax through the end of June.

So if you are planning a major home improvement, talk to your contractor about placing the order. On a $5,000 order, in a 7% sales tax county, that’s a $350 savings.

Unlike most of the other holidays, this exemption also applies to commercial orders.

More detail on home hardening exemptions here: https://floridarevenue.com/taxes/tips/Documents/TIP_22A01-07.pdf

Fun Events, Outdoor Supplies and Annual Passes: The whole month of July

This sales tax holiday began during the pandemic. Event tickets, camping supplies, paddle boards, kayaks, binoculars, grills, and bicycles are some of the larger ticket items included in the holiday.

Of note also – annual or season passes for museums, theater series, ballet, and state parks.

The complete list for events and supplies during “Freedom Month” is here: https://floridarevenue.com/FreedomMonth/Documents/2024/FM%20poster%2011×17.pdf

Back-to-School: July 29 – August 11

The list of back-to-school items has a few surprises in it. Items you would assume are included are not, and others you assume are not, are. (Example: snowsuits included, swimsuits not). More information on the strange list of exemptions here: What Does Qualify for Florida’s Back to School Sales Tax Holiday?

Also, see the back-to-school flyer (complete list not available yet as of publication): https://floridarevenue.com/backtoschool/Documents/2024/BTS_poster11x17.pdf

Labor Day/Tool Time Tax Savings: September 1- September 7

Larger-ticket items on the “Tool Time” holiday include power tools under $300, power tool batteries, toolboxes, and work boots. It also includes shop lights, plumbing tools, and duffle bags.

More detail on “Tool Time” exemptions from 2022 here: https://floridarevenue.com/taxes/tips/Documents/TIP_22A01-09.pdf

A Lack of Preparation Story

During Hurricane Irma in 2017, the middle of the spaghetti models 5 days out showed the storm was likely going up Florida’s east coast. This is the opposite coast from where we live. My husband and I got double-busy with clients who wanted to squeeze in appointments before it hit. We got caught up in the work and ignored our own preparations. I didn’t fill up my car, and we didn’t check our stock of Coleman stove propane canisters. By the time the forecast shifted, there was no gas to be found – for the car, for the stove – of any kind, anywhere.

Irma left us without power for 7 days. Cooking on a tiny charcoal grill in the backyard got old quickly. After 3 days, when the charcoal started getting low, the temperature inside climbed to 83 with humidity of 100, and the frozen fish was rotting, we called it quits and found a hotel with electricity that had managed to reopen.

For a Florida native, experienced with hurricanes, whose job title includes the word “planner,” it felt like I should have done better.

Lesson Learned

For Ian in 2023, I paid more attention to all the strings on the spaghetti model, not just the ones in the middle. We stocked up, and I evacuated to a location outside of the projected storm surge zone. Although we ended up safe from storm surge, it was nice to feel better prepared this time around.

The sales tax waiver was a nice nudge for procrastinators like me. Disasters of all different sorts happen. Take advantage of the holidays to prepare yourself, and enjoy a little inflation relief.

Have you found a great deal using a sales tax holiday? Please share by leaving a comment.

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Financial Anorexia? Stuck like Scrooge

blank stare or self-doubt emoji

Financial anorexia: Stuck like Scrooge. What is financial anorexia? Financial anorexia is a type of spending disorder. People who suffer from the eating disorder of anorexia may obsess about food and the number on the scale. People who suffer from the financial disorder may obsess about money and the number on their bank statement. For those suffering from financial anorexia, they never believe they have enough to enjoy what they’ve got.

According to Ken Donaldson, LMHC, a licensed mental health counselor in Seminole, Florida, “Anorexia is characterized by a distortion of perception.” Someone suffering from the eating disorder believes they still need to lose extra pounds, when to everyone else it’s clear they are harming themselves. Someone suffering from the financial one believes they still need more money, when it’s clear they are depriving themselves.

While the eating disorder of anorexia is deadly serious and can be fatal, financial anorexia can be dangerous in other ways – to mental health, friendships, and family relationships. Financial anorexics can seem to be more engaged in extreme deprivation than in enjoying life’s simple pleasures. Family members are most often affected by the wealthy relative whose reluctance, reclusiveness or reticence are, at a minimum, puzzling, but more often, hurtful.

Where Does Financial Anorexia Come From?

According to Donaldson, anorexia is fueled by isolation – the more the sufferer depends upon their own distorted perception, the worse their condition becomes. Ebenezer Scrooge (in the beginning of Dickens’ tale) is an isolated penny-pincher and money hoarder. He is the stereotype of the financial anorexic.

Another root cause can be fear. What are anorexics often afraid of? Stated fears might include:

  • a catastrophic world event;
  • a very expensive health issue;
  • hyper-inflation; or
  • “spoiling” family members or friends.

Certainly some of these things can and do happen. Yet our societal messages, and brains wired to look out for danger, emphasize catastrophic scenarios like these past the point of their actual probability.

Yet, other fears might be at work that aren’t as overt. Unstated fears might include loss of self-worth or security.

Anorexia is also fueled by our cultural norms. Western society still worships conspicuous wealth and Twiggy-like figures. “You can’t be too rich or too thin,” sums it up.

Most people understand the “too thin” part, but “too rich”? Is it possible to be “too rich”? Financial anorexics, like Scrooge, typically amass abundant resources. However, their wealth does not come from a healthy relationship with money. They might be “too rich” for their actual needs. Further, the more they have, the more they have to fear losing. The hoarding-like behavior only gets worse the more successful they are at it.

What Can Be Done About It?

At some point in life, many financial anorexics realize, to their immense regret, that they worried more about what might happen, and didn’t, than enjoyed what they actually had.

Exposure to new information sources is one method of help. According to Donaldson, “New information will disrupt the pattern.” Support groups, a counselor, and therapy can provide external points of view. For financial anorexia, a visit with an understanding financial professional, who can provide concrete reassurance, often is a good first step. All of this exposure also helps break the distorted perceptions brought about by isolation.

Sometimes the new information has to come from, unfortunately, a painful life-altering event. How did Scrooge turn around? The Ghosts of Christmas Past, Present and Future showed him more to be afraid of – and how his isolation and withholding were harming others – than the fears he made up for himself.

At some point, it makes sense to ask a few questions:

  • What have all the years of saving been for?
  • How much is too much to spend on seeing family or friends? 
  • How soon is too soon to leave a stressful, unhappy job if it’s taking years off of your life?
  • What is it truly worth to take the trip you have been dreaming about for so many years?
  • How much is too much to spend on self-care like massage, therapy sessions, or a manicure?
  • What if the thing you are afraid of is completely unknowable? What if it wouldn’t be solved with money anyway?

Working With an Understanding Professional

A 2017 study sponsored by the CFP Board supported the psychological benefits of working with a financial professional. The study concluded, based upon a survey of over 800 consumers, that, “Working with a CFP® professional ultimately removes the negativity consumers experience relating to their finances and instead elicits feelings of confidence, optimism, ease, and security.”

Confidence, optimism, ease, and security. Those sound better than catastrophes, worry, and fear.

How do you want to feel about your financial future? Share your thoughts below.

Want more information about financial psychology? Sign up for our monthly e-letterschedule a call, or check out  The Mindful Money Mentality: How To Find Balance in Your Financial Future.​

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How I Work Virtually as a CFP®

How I Work Virtually

Although it’s more common to work virtually with a financial advisor than pre-pandemic, many people still have questions about it.

How secure is it to meet virtually? In the beginning of the pandemic there were security concerns about certain online platforms, more notably for telehealth visits than for financial meetings. But the platforms quickly invested in measures that enabled corporations, medical providers, governments, and everyday users to provide a secure place to meet. That being said, no platform is 100% secure. We began with GoToMeeting but now use the Zoom Pro platform because more clients are familiar with Zoom.

How do you get all the documents you need securely? We provide a secure link. You can upload as many documents as you like. We suggest uploading at least 2 weeks before the scheduled meeting.

Will I be able to see my plan clearly on a small screen? We don’t recommend using a smartphone, however, anything from tablets/iPads to full monitors work just fine. We can manually zoom in and out on our end to make the content more viewable on your screen.

What if I need to share my own documents or spreadsheets during the meeting? We can enable two-way screen-sharing so you can share your own documents.

What if the technology breaks? Hey, it happens! We have a couple of backup plans.

What is the backup plan? If the problem is audio, switching to speakerphone is pretty seamless. If the problem is video on one end, we can usually figure the issue out within a few minutes. When there is a video problem on both ends, that usually indicates an internet or connection problem. Although rare, if that happened, we would suggest rescheduling but proceed as audio-only if that’s your wish.

How are you audited or regulated from your home office? We are regulated by the state of Florida who now conducts audits virtually.

How do you keep distractions to a minimum? It’s difficult when the view of the yard, birds and butterflies is so nice! Fortunately the location is quiet except for the occasional leaf blower.

How can I have the best experience meeting virtually with a financial planner? Great question! In the same way we would have you as a guest in person, we want you to be as comfortable as possible during your meeting. Here are a few tips:

  • Consider crafting the ideal spot for you. That might or might not be your office or desk chair. Couches are cool. So are pillows and pets.
  • Dress more comfortably than you would for a meeting in person. Socks and sweatsuits encouraged.
  • When more than one person is participating, we find it makes for a better experience if you each have your own screen. If you are in the same room, turning off one device’s audio will eliminate echo and still allow for us to hear each other just fine.
  • Grab a beverage and your favorite snack.
  • If you feel uncomfortable at any time, don’t hesitate to ask for a break or a few minutes to change rooms/couches/chairs.

Working Virtually Has Advantages for You

People have shared how much they appreciate:

  • Time savings of not traveling to Seminole (no Howard Frankenstein bridge!)
  • Meeting in the comfort of their own home or office
  • Not feeling the need to get dressed up
  • Having their pets close by

Our hope is that by removing pressures of extra time and effort to meet in person, and being a little more comfortable in your own environment, some of the stress that can come with financial planning and decisionmaking is reduced.

What other questions do you have about meeting virtually? What have been your experiences, positive or negative, with virtual meetings? Share your comments and thoughts below, or tell us first-hand by contacting us.

Continue ReadingHow I Work Virtually as a CFP®

Before You Click Renew: Fall Enrollment Reminders

Before you click Renew – Fall Enrollment Reminders.

When it comes to employer, private health, and Medicare benefits, it’s easy to simply renew last year’s choices.

However, it can be worth the extra time to look closely at all options, and how they might have changed.

“Research shows employees only spend 17 minutes electing their benefits, while Netflix users spend an average of 18 minutes deciding what to watch,” according to Kiplinger’s: http://bit.ly/Kiplingers-Benefits.

Under 65: Health Insurance

If you are under 65, check for HSA (Health Savings Account) eligibility on your policy. Contributing to a family HSA can save roughly $2000/year in taxes (depending on your marginal tax bracket). Plus, if you are relatively healthy and do not use the HSA, your earnings grow tax-free until retirement. Click here [https://www.hollydonaldsonfinancialplanner.com/hsas-over-iras/] for the reasons why HSA’s beat IRA’s as retirement accounts.

HSA eligibility, unlike IRA eligibility, is not dependent upon having earned income. The last year you can contribute to an HSA is the year before you turn 65.

65 or Over: Medicare

If you are 65 or over, your first opportunity to enroll begins 3 months before you turn 65 and continues until 3 months after, unless you are still employed. Sign up for Part B at the first opportunity (after leaving your employer), otherwise your premiums increase 8% – 10% per year.

Enrollment for existing Medicare beneficiaries for 2022 runs from October 15 – December 7.

If you are on prescriptions, the formulary – the list of drugs that Part D covers – might have changed. Make sure your prescriptions will still be covered. Stories abound of huge jumps in co-pays after January 1. At www.medicare.gov, you can input your prescriptions and the site will advise you which Part D plan covers the meds you need.

Long-Term Care Insurance

Group long-term care offerings through employers are becoming a benefit of the past. Private policies can be bought with better coverage, but premiums are increasing. If you are at least 40 and have access to a group policy, strongly consider enrollment. Most group policies are portable if you leave the employer. Also consider shopping your group coverage against a private policy.

Long-Term Disability

The younger you are, and the more education you have, then the more likely that your potential earnings capacity over your lifetime, known as your “human capital,” is your biggest financial asset. Protect it with LTD coverage.

We are all more likely to be disabled than to die. Most employers provide short-term disability for 90 days.

Long-term disability coverage, if offered, varies from 40% to 80% of compensation until age 65. Some employers provide the opportunity to purchase supplemental coverage; others don’t.

Finally, check whether you are covered for “own-occupation” or “any-occupation.”

Group Life Insurance

Many employers provide one year’s salary as a default for group life insurance, with the option to purchase more for the employee or the employee’s spouse or domestic partner. It’s usually a good deal.

If you didn’t sign up at your initial enrollment, you may need to submit to a paramedic exam if you request more coverage.

Employer Stock Options/Restricted Stock Purchases

The most common error among holders of options and restricted stock is concentration of investments, and future earnings, in that employer. This is usually because those employees own employer stock outright, plus options, plus more stock in a retirement plan through a company match. That’s a lot of eggs in one basket.

You may be highly satisfied with the company’s potential.  (So were Enron employees.) Stuff happens. Before making major moves, consult a CPA or CFP. Employer stock decisions can have major tax consequences.

These are just a few of several benefits options commonly found with larger employers. Walking through elections with your financial planner is a good idea at enrollment time. Make a special appointment to do so in advance of the holiday crunch. (Book a 90-minute planning appointment for a Financial Checkup direct at: https://go.oncehub.com/HollyDMeetings)

For questions about planning services, pick the best time for Holly to call you: https://go.oncehub.com/hollypthomas.

Continue ReadingBefore You Click Renew: Fall Enrollment Reminders

Death By A Thousand Indecisions

indecisions

“Then indecision brings its own delays, And days are lost lamenting over lost days. Are you in earnest? Seize this very minute; What you can do, or dream you can do, begin it; Boldness has genius, power and magic in it.”

Johann Wolfgang von Goethe, Faust

Death by a thousand indecisions. As Goethe asked, are you “in earnest”? When it comes to decisionmaking, sometimes it’s quick: Ready-Fire-Aim. With other decisions, we take our sweet time. How much is indecision costing you?

Like death from a thousand cuts, indecisions can slowly deplete our energy, leaving little behind for ourselves or others.

Decisions are Draining

That’s because decisions are draining. Neuropsychologists like Dr. Moira Somers tell us that decisionmaking depletes our mental energy. According to Dr. Somers, every day we wake up with a finite amount of mental energy. As the day goes by, the more decisions we make, the less energy we have. And the bigger they are, the more energy they use.

Think about life’s transitions. One reason transition times, good or sad, are so stressful and exhausting – a move, a death, retirement, a child, a divorce – is the many seemingly small, plus a few momentous, decisions.

Further, lack of sleep, hunger, grief or even excitement can start the whole day off depleted.

Then, every indecision we “make” is a decision. In fact, a pattern of indecisions can take physical form, and stress us out every time we see it.

What does not-deciding look like? A pile of unfiled papers. Empty boxes stacked in the garage. The “miscellaneous drawer” in the kitchen. The “junk room.” Scattered financial accounts in too many places. Unfinished projects.

With a finite amount of mental energy at hand, who can blame any of us for having some kind of to-be-decided pile/stack/assortment hanging over us all the time?

Dealing with Indecision

What to do about it?

  • Make big decisions in the morning, before depletion sets in.
  • Automate it: Use a system to take care of small decisions automatically
  • Eliminate it: Ask often, “How important is it?”
  • Date-Activate it: Calendar the decision to deal with and be done
  • Delegate it: Ask for help

Automate It

An automation example I love and have yet to implement is the decision of what to wear. Michael Kitces, a noted financial expert, famously has a closet full of the same blue shirts, pants, and shoes. One less decision each day for a busy guy.

Another example is cooking. Thanks to Cassy Joy Garcia’s book, Cook Once: Eat All Week, our household now pre-preps ingredients on Sunday. Then, each work night is 15-30 minutes to assemble and cook the ingredients with pre-planned healthy recipes. The meals are delicious, but the best part is not having to make the decision of what’s for dinner. Hallelujah.

Eliminate It

In the summer of 2021 I began thinking about a new car. My financial plan called for me to sell my would-be 7 year old car in January 2022 and buy another one. I couldn’t decide what kind of car to buy.

Aware that the indecision was draining me, I wondered why I was having such a hard time deciding. Then it hit me. I didn’t need a new car. In fact, I didn’t need a car at all. My husband and I had both switched to working from home. Why did I need a shiny hunk of metal to sit in the garage? We had my husband’s car, which was only 2 years old. We ran a 6 week experiment without using my car to see if it caused any problems.

When we saw that it didn’t, I felt immense relief. This told me I was making the right decision. Besides, it was a good time to sell a used car. $15,000 later, we are both very happy about eliminating that decision!

Date-Activate It

My calendar rules my life. It tells me what to do, where, and when. If this is not you, then this tip might not work.

One decision that goes on the calendar every year is whether to take a ski trip and if so, where. The local ski clubs publish their trips around August/September. Ski season pass discounts usually end on Labor Day. So I have the calendar marked for that timeframe to do my research, poll my skiing girlfriends, and make the decision. While it feels sooner in the season than I would like to make a commitment, if I did not give myself a deadline, I would dilly dally into December as all of the good trips filled up. And in the meantime, I would be spending a huge amount of mental energy on something that’s supposed to be fun.

Delegate It

Part of my indecision problem has been the flawed belief that I should be able to do everything myself (and perfectly, which is a topic for another blog post).

However, after a divorce, when my brain was extra foggy, I had significant success with hiring a friend to help organize. At the same time, I had estate planning documents updated with a local attorney. With my friend’s insight, coordination, and diligence, I quickly had an uber-organized office AND an updated “emergency box.” I felt the fog lifting as things came together.

It turns out that hiring help accelerated my decision making and used less energy. Perhaps this is what Goethe meant by the boldness in beginning. Delegating to others can be bold.

Getting Better and Better

Goethe said in that boldness to begin the decision we find genius, power, and magic. Further, there is a spiraling effect – the fewer decisions left to make, the more time to do what we do best. This is far better than a daily slog through indecision-infused mud.

At some point, with excess energy, I felt ready to give back. Someone close to me suddenly lost her husband and her mother within a three month period. She had an overwhelming number of decisions to make about seemingly small stuff, and was in a grief-stricken state to be doing so. I feIt the capacity to help her. I could not have made that statement before I had my own house in order. I don’t know if that counts as genius, power, and magic, but it felt really good to do.

What About You?

What if you took an indecision pile and automated, eliminated, date-activated, or delegated?

Who might you then be able to help?

Genius, power, and magic are waiting, if we have the boldness to begin.

Continue ReadingDeath By A Thousand Indecisions

Money: Values, Behaviors, Habits and Change

saving money

Money values, behaviors, habits, and change: Perhaps there is something about middle age, or a pandemic, that creates the urge to examine values, behaviors, habits, and change.

At my 25th college reunion, I had breakfast with a college friend who worked for our alma mater, Davidson College. She had attended lots of reunions.

I asked about her observations of reunion attendees. She said something like, “At the 10-year mark, everyone’s comparing notes – who has how many kids, who has graduate degrees, what they did for vacations, what kind of home they live in, etc.”

In other words, their money values tended to be focused on status.

“By the 25th, nearly everyone has experienced some kind of life event, and they are a lot more mellow. The other stuff must not seem as important.”

So, values shift as life unfolds.

Values drive behaviors, which become habits. When we begin to question the behaviors and habits, we become ready for change. And that’s how growth happens. Eventually this process can work its way into finances.

Beginning to Examine Behaviors – Eating Habits

My own path to behavior change didn’t start with money. It started with eating.

One of my first experiences with behavior change was through Weight Watchers. I was 35 years old, 5’3″ and 15 pounds overweight. I decided that I valued being healthy more than enjoying unhealthy food. I lost 20 pounds and gained 5 back, but kept it off.

How did I do it? Tracking and accountability. Whenever my clothes got tight, I would write down everything I ate. This helped me track and change my eating behaviors permanently.

Ironically, tracking and accountability had come naturally to me with money. I wrote my first budget at age 9, and had tracked my money ever since. This made me a good saver, but later I learned it didn’t necessarily mean I had a good relationship with money.

Conversational Habits

Next I moved to healthier conversation habits.

The values of listening well and feeling heard became more important. I learned that “listening” does not mean, “Wait until the other person is finished talking so I can say what I want to say.”

Listening means to suspend all noise and chatter in my head; and reflect on what I am hearing. To eliminate the noise and chatter, I acquired a rule: Anything that I want to say while someone else is talking, I am not allowed to say.

Like any other habit change, it took conscious effort at first. When I think of something I want to say, I let it go, stay present, and listen. I found that, if I truly wanted to understand someone then what I wanted to say would have gotten in the way of that.

My conversational habits, and relationships, improved.

Money Values, Behavior, Habits and Change

My money habits needed improvement too.

I used to overtrack my spending and worry unnecessarily about it. This led to a habit of denying myself some things that would have been convenient, or just enjoyable. Then, like binge eating, I would splurge on something silly or outrageously expensive. Even though the splurges never exceeded the savings, it created big regret and self-criticism.

This roller coaster of emotions tied to money was one of the hardest habits to break. The shift came indirectly through other personal changes wrought through a divorce. Working structured programs with friends who shared similar struggles helped me identify emotions sooner and do something more constructive with them.

This education helped me write The Mindful Money Mentality: How To Find Balance in Your Financial Future, for people who have difficulty spending their savings in ways that bring joy and happiness.

Examining is Easy; Change is Hard

It is easy to underestimate how difficult behavior change can be.

It’s normal to believe we can simply tell ourselves to act differently. We can “just say no” to cookies after dinner, to quit interrupting, or to quit worrying about financial things we cannot control.

Instead, it helps to have a nudge – a program, a structure, a new discipline, or an accountability partner – to complete the transformation from old habits to new ones.

Before you know it, with new habits, a lot of good physical, relational, mental, and financial growth will happen.

Enough good stuff to share at the next college reunion.

Continue ReadingMoney: Values, Behaviors, Habits and Change