Five Minute Finance

It’s not often that you are in the position to donate 100% of your income to charity. However, if you find the capacity and willingness to give, this year has special tax rules that you should be aware of.

The IRS is allowing a 100% deduction off your taxable income for charitable donations. This means that you are left with $0 in income and owe $0 in taxes! While that sounds wonderful, please don’t stop there! You want to take advantage of the following opportunities while your income tax bracket is low:

1. Roth Conversions: Consider moving money from your Traditional account to a Roth account. You must pay taxes on the converted amount, so do that while your bracket is low!
2. Capital Gains Harvesting: If you have no income, you can sell appreciated stock with up to $80k of capital gains and pay $0 instead of your typical 15-20%.
3. Withdrawals from Tax-Deferred accounts: This counts as income, so it’s a good year to pay taxes on that income while giving money away.
4. Portfolio Rebalance: Again, a good time to sell appreciated stock and rebalance your portfolio when your income is low.

Note: The 100% deduction must be made in cash directly to charities (not Donor Advised Funds or Private Foundations). This may not be the best tax strategy if you do not have cash and need to sell appreciated assets. Check with an advisor first!

Find out more about Mike at https://www.mortonfinancialadvice.com and connect at https://www.linkedin.com/in/mwsmorton/

The last few years have been awful in so many ways - we’re all well aware of that. But it’s also exposed us to a new environment to consider what is truly important in our lives. It’s forced a new perspective and we gain a new understanding.

This is one factor that has lead to the Great Resignation: the strange phenomenon that has more workers on the sideline and a great many switching jobs. But in this time of change, make sure to stay grounded and consider the impact on your finances both now and in the future.

In particular:

1. Priorities: Understand what is truly important to you now and in the future
2. Savings: How long can your savings support you if you are out of work or switching jobs?
3. Long-Term: Make sure to consider long-term effects of your current savings (or spending). You don’t want to short-change your future self.
4. Leaving a job?: Make sure to consider benefits both at your current and future employer.

Find out more about Mike at https://www.mortonfinancialadvice.com and connect at https://www.linkedin.com/in/mwsmorton/

Today I discuss Congress’ proposal of taxing unrealized capital gains for individuals with over $1B in Net Worth. I’m curious how this will work and if the government will collect anywhere near the $250B that they predict. Matt Robison is an expert in public policy and capital hill, so it’s the perfect chance for us to discuss this topic.

Enjoy the wide-ranging discussion on the intersection of public policy and personal finance!

Find out more about Mike at https://www.mortonfinancialadvice.com and connect at https://www.linkedin.com/in/mwsmorton/

It’s smart to review your tax strategy and planning to keep more money in your pocket. Use the checklist below as a starting point to see what might apply in your situation.

• Maximize contributions to your employer retirement accounts (401k, 403b, etc) ✅
• Maximize contributions to your Individual Retirement Accounts (IRA) ✅
• Top off your Health Savings Account (HSA) ✅
• Take your Required Minimum Distributions (RMD) ✅
• Consider making a Qualified Charitable Contribution (QCD) ✅
• Use a Donor Advised Fund to implement a bunching strategy. ✅
• Consider a Roth Conversion (or multi-year Roth Conversion strategy) ✅
• Tax Loss Harvesting: sell investments at a loss to offset gains. ✅
• Tax Gain Harvesting: sell gains if you are in a low tax bracket. ✅
• Make sure to use your Flexible Spending Account (FSA) money. ✅
• Can you defer income to 2022 to save on taxes?  [might not be a good idea based on potential increasing tax brackets]✅
• You can give away 100% of your income as a Cash donation in 2021! ✅

Find out more about Mike at https://www.mortonfinancialadvice.com and connect at https://www.linkedin.com/in/mwsmorton/

Julie heard about a real estate investment idea on the radio and was curious: Should I invest in this advertisement?

We break down the topic into two parts: 

1. Should you invest in Real Estate?
2. How do you evaluate an investment opportunity that you are considering?

Bottom Line Up Front:

1. Yes, I believe that Real Estate has a place in a well-diversified investment portfolio.
2. Pause, research, and understand how a potential investment fits into your strategy and goals.

Find out more about Mike at https://www.mortonfinancialadvice.com and connect at https://www.linkedin.com/in/mwsmorton/

I often recommend using your Health Savings Account (HSA) as another retirement account with tax benefits. This is different than the way most people approach the HSA because it starts with the word “Health” and you can pay for medical expenses. But you can invest the money for the far future allowing it to grow and compound tax-free. The best part is that you can even pay yourself back for medical expenses that you are incurring now!

Listen as Julie and I discuss how to actually use this account including:

• How to choose the right health plan for you
• Who contributes money to your HSA and when
• How to pay for current medical expenses and what to track
• How to invest your HSA for the future
• How the HSA can be used as an emergency fund!

Find out more about Mike at https://www.mortonfinancialadvice.com and connect at https://www.linkedin.com/in/mwsmorton/

Did you know that your investments cost money? Those mutual funds, ETFs, brokerage accounts, etc - are not free, despite the marketing. It takes people and companies to produce those products, so you better believe you are paying for them somehow. It pays to understand the costs.

The biggest one I want to cover today is called the “Expense Ratio” for a mutual fund or ETF because this is a yearly fee deducted from your investments. For any fund that you own, you can quickly look up the expense ratio which will be somewhere between 0% and 2%. If all your funds are in that 0-.2% range, you are doing well.

There are legacy funds that charge up to 1% or 2% but invest in the same universe of stocks as funds costing just .1% ! Do a quick checkup to confirm you aren’t in one of those.

Tune in to hear:

• Why do funds have different fees?
• When might it be OK to invest in a fund with a higher expense ratio?
• What other fees are beyond the expense ratio.

Find out more about Mike at https://www.mortonfinancialadvice.com and connect at https://www.linkedin.com/in/mwsmorton/

Do you recall how you felt in March 2020? You felt terrible. How do I know? Everyone did. The news was bad, the future uncertain, the death toll rising and current events were spiralling downwards. The market had fallen 35% in 3 weeks. There were no bright spots.

With the news and environment unchanged, the stock market started going up. And it kept going. Why? The participants could see over the chasm of closed and failing businesses to more online shopping? 

For every turn in the market, on a daily basis, the talking heads will give you a reason why. It’s always written after the fact. And the lesson I learned first-hand last year was this: there is no reason. Sure, maybe over years of economic growth and stability, the markets go up. But any given day, month or year - no one has any idea what the market will do.

So, what to do? That’s the important part: be ready for anything and take what the market gives you. It goes up? Rebalance back to bonds, be slightly more defensive. It goes down? Rebalance into stocks, be slightly more aggressive. Ignore the news, look at the numbers and take what you’re given.

Find out more about Mike at https://www.mortonfinancialadvice.com and connect at https://www.linkedin.com/in/mwsmorton/

We all know that you can barely get any interest, or return, on your savings account. The Fed is keeping the interest rate very low, which translates into low returns on savings and safe assets like money markets and government bonds. With so little return in the traditional fixed-income side of your portfolio, does that fundamentally change the way you should consider risk?

It used to be that you could get 4-5% interest on fairly safe investments like your savings account and money market accounts. Therefore, to invest in more risky assets like an individual stock or the entire stock market, you would expect to get more than 5%. Seeking risk wasn’t the safe thing to do, avoiding it was. But now we’re in the opposite regime: you have to actively seek out risky investments in order to get a decent return.

It’s important to understand the associated risks of your investments. Make sure that you know what the range of future outcomes could be, and how that might affect your ability to reach your goals. Be confident with a plan on how you will proceed in any given market event.

Resources:

• What You’ve Lost in This Bull Market