The Fiscal Blueprint: Retirement Built Right w/ Financial Coach Jeff Montgomery

The Fiscal Blueprint: Retirement Built Right w/ Financial Coach Jeff Montgomery

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The Fiscal Blueprint: Retirement Built Right w/ Financial Coach Jeff Montgomery episodes

  • Episode 62: The Investor's Dilemma

    On this week's episode of the fiscal blueprint podcast, we have a 'blast from the past' for you! We revisit an oldie, but a goodie, of an episode with Jeff & Joani where they discuss the Investor's Dilemma. The information in this episode is especially applicable today as it may help investors have peace of mind, especially in turbulent times like we are currently facing.

    28 min
  • Episode 61: Retirement Age Confusion!

    Do you ever get confused about all the different ages and dates surrounding retirement? Social Security ages, RMD ages, Medicare ages…. the list can go on! Dates and age triggers in our retirement system can be really perplexing. In this week's episode, we clear up confusion and discuss some common misconceptions about important ages & dates in the retirement planning realm.

    I began to give this some thought based on some recent experiences I have had during our annual strategy meetings with our clients, where there was some confusion on the SS start dates.

    It dawned on me that the dates and age triggers in our retirement system are really baffling! And folks that don't do this for a living and deal with these dates everyday like we do, can get easily confused.

    And to add even more confusion… sometimes the federal government changes the age triggers such as we saw in 2020 regarding RMDS

    So without further delay let get to our practical planning segment and clear up some of these things ………shall we?

    Disclaimer: Please do not take advice from me on this show. As a licensed Fiduciary I am only allowed to give advice to clients. So unless you're a client I cant give you advice because I don't know you. So think of this as helpful hints and education only. And please before implementing any information or ideas you hear on this show always consult your legal adviser, your tax adviser , and your financial adviser………….right? that's just common sense.

    Age confusion!

    Common misconceptions/confusion on different retirement ages. You know sometimes we forget that this is what we do every single day so we pay attention to the different dates and ages of various retirement topics, but most people don't do this for a living and it's very easy to get confused about specific retirement dates and retirement age is when it comes to different things like Social Security, required minimum distribution's, early withdrawal's,

    (3:15) Confusion about age 70 1/2, and age 72 under the new SECURE ACT. RMD's!

    (5:00) RBD Date; required beginning date. April 1st year after you turn 72

    (7:50) Confusion about age 59 1/2, age 55, and the 457b rule: 10% IRS penalty

    • Must always refer to the plan document. Not all plans will follow the IRS rule

    • If you have a governmental or non-governmental 457(b) plan, you can withdraw some or all of your funds upon retirement even if you are not yet 59½ years old.

    (11:40) SS ages; 60, 62, FRA, age 70:

    • People sometimes get confused about how long they can delay Social Security and can end up missing some payments.

    • Story about SS delaying to age 72 mistake. Back date application 6 months

    • If widow or widower collecting from a deceased spouse's SS record can start as early as age 60

    • Child benefit if under 18 and parent is collecting

    (18:30) AGE 50 This is the age that triggers many catch up contributions for various accounts

    • IRAs $1000 extra catch up: $6,000 limit plus $1000
      • No changes for 2022

    • 401k $extra $6500 catch up; 19,500 to $26,000 (these are 2021)
      • 2022 changes regular contributions up $1000! From 19,500 to 20,500
      • Catch up contributions stays the same at $6500

    • Simple IRA-small employer its extra $3,000 from $13,500 to $16,500 (2021)
      • 2022 changes regular contribution up $500! From 13500 to 14000
      • Catch up contribution stays the same at $3k.

    • Now because the government likes to get us used to something and then all of sudden change the rules the age 50 catch up does not apply to Health Savings accounts!

    • HSA the age is 55 not 50. $1000 catch up

    (22:00) Age 65 important things to know

    • Medicare enrollment 7-month window

    • involving taxes: Extra deduction on top of regular std deduction. You will get an extra $1350 each if married and extra $1700 if single.

    Final Disclaimer:

    "We appreciate you joining us today for this episode of The Fiscal Blueprint.

    Be sure to visit fiscalblueprint.com to access the most recent content available including all past shows.

    Remember it's not about the money but about your life!

    Having a mindset and living a life of abundance rather than scarcity will change the direction of your life forever!! Enjoy the Journey!!!

    "Opinions voiced in this recording are for general information only and not intended to offer specific advice or recommendations to any individual. All performance references are historical and no guarantee of future results. All indices are unmanaged and not available for direct investment."

    Berlin, Maryland ~ Lewes, Delaware ~ Eldersburg, Maryland

    Fiduciary, Independent, Registered, Investment Advisor Representatives

    25 min
  • Episode 60: 8 Things to Know When Choosing a Medicare Plan

    It's that time of year again! It's open enrollment for Medicare. Have you noticed all the commercials on television?

    The decision isn't always easy. And can be very confusing for some. So, in this episode of the fiscal blueprint, we're going to talk about eight things to know when choosing a Medicare plan.

    Disclaimer: Please do not take advice from me on this show. As a licensed Fiduciary I am only allowed to give advice to clients. So, unless you're a client I can't give you advice because I don't know you. So, think of these as helpful hints and education only. And please before implementing any information or ideas you hear on this show always consult your legal adviser, your tax adviser, and your financial adviser…………. right? that's just common sense.

    practical planning segment:

    Welcome to our practical planning segment and I am joined by our co-host Mr. Nicholas Craven a CERTIFIED FINANCIAL PLANNER®

    So, nick today we are going to talk about choosing a Medicare plan now slight disclaimer here we are not Medicare planning specialists right.

    Today is about general education and information on what to think about when choosing a Medicare plan. It is always wise to go to a Medicare planning specialist and/or do your own due diligence on medicare.gov website.

    This topic can be confusing because of all the different options and open enrollment periods.

    So basically, when Americans turn age 65, they have three basic options for health coverage.

    1. Traditional Medicare
    2. Traditional Medicare plus supplemental insurance to cover the cost that Medicare does not
    3. or a Medicare Advantage plan which is a range of managed care plans

    making this decision is not easy because there is a lot of fine print when it comes to the expenses and the coverage. Choosing the wrong plan depending on individual circumstances can be costly and depending on where you live it can be hard to undo an incorrect decision. Most states make it difficult to switch plans so it's crucial to pick wisely

    so, let's give a little bit of background and basic information and then we're going to talk about the eight things that every person should know when selecting a Medicare plan.

    (5:00) Enrollment Periods: There are three basic enrollment periods where you can join, switch, or drop a Medicare health plan or a Medicare Advantage plan commonly known as part C with or without drug coverage. By the way, this is all on www.medicare.gov website

    1. The first is the initial enrollment period. This is when you first become eligible for Medicare. This is a seven-month period that starts three months before you turn age 65, includes the month you turn 65, and ends three months after you turn 65.
    2. The next is the open enrollment period. this is from October 15th to December 7th each year. You can join, switch, or drop a plan. Your coverage will begin on January 1st as long as the plan gets your request by December 7th.
    3. Next is the Medicare Advantage open enrollment period and this extends from January 1st to March 31st of each year. If you're enrolled in a Medicare Advantage plan, you can switch to a different Medicare Advantage plan or switch back to original Medicare once during this time.

    What are some important things to know when choosing a Medicare plan? The Wall Street Journal recently released an article by Neil Templin on October 17th of 2021 this year and highlighted some interesting things regarding your choices when it comes to health care coverage at Medicare age.

    (7:20) Number 1: Supplemental insurance is usually the best option for people who can afford it or who have health issues. remember supplemental insurance is traditional Medicare plus a supplemental plan. Rather than a Medicare Advantage plan which we'll get into later on.

    • So, in the Wall Street Journal article they give an example of this with an individual who turned 65 later this year. And this particular individual has rheumatoid arthritis and takes expensive drugs to combat it.
    • To help him decide which coverage to choose this particular individual went to a Medicare consultant who ran numbers and calculated the difference based on his prescription drugs which option would be less expensive traditional Medicare with a supplemental plan or a Medicare Advantage plan.
    • This is were fairly dramatic. With traditional Medicare plus a supplemental end drug plan he was facing $11,324 a year for premiums and his deductible. By contrast if he chose an advantage plan the consultant calculated his cost including the out-of-pocket spending for the medical care and drug purchases could run as high as $18,325 per year again his costs are very high because of the out-of-pocket prescription costs
    • Medicare Advantage plans are financially risky for patients with health issues. Now if this individual did not have high prescription costs and potentially high health issues, he could possibly save about $3000 with an advantage plan but based on his circumstances and his prescription drug costs. He could end up paying higher costs.
    • Another advantage to traditional Medicare with supplemental insurance is that this individual will be able to go to any doctor or hospital that accepts Medicare without referrals. The most popular supplemental plans R plans F or G. These plans have no copays however plan G does have a $203 annual deductible

    (11:30) Number 2: Having Medicare alone is risky. The article goes on to state that some 5.6 million Americans enroll in traditional Medicare but do not buy supplemental insurance. This is according to the Kaiser Family Foundation. They all pay monthly Medicare premium, Part B, but face no other cost except for drugs if they do not seek medical care.

    The problem is if they get sick or injured and require long term stay in a hospital or even worse a skilled nursing facility, they are not protected like those that would have a supplemental coverage or a Medicare Advantage plan. Suppose you're in a bad car accident and had to spend months in a skilled nursing facility Medicare alone only covers the first 20 days.

    (12:40) Number 3: Medicare Advantage plans are cheaper for seniors in good health. But there is a catch.

    1. So, if you're not going to a doctor a lot and usually stay quote in network unquote, Medicare Advantage is less expensive than a Medicare plan with a supplement. Many of these advantage plans have no monthly premiums. These are the ones that you see advertised on television all the time. They can also include extra benefits like dental and vision and hearing. Some even offer gym memberships.
    2. But the catch is a big one, Medicare Advantage patients must use in network providers or face copays that are substantially higher than what people with Medicare supplemental insurance customarily pay period so for example the article goes on to state, what if you needed a top cancer hospital and it isn't in your plan, you might incur thousands of dollars of additional costs.
    3. Also switching may not be as easy as you think. You can't just consider your current health in this decision, starting an advantage plan and figuring you can just switch to a supplemental plan down the road if your health worsens could be risky depending on where you live. I mentioned earlier that in most states the companies that sell supplemental insurance have the right to charge you more or even deny you altogether during that enrollment period we talked about earlier

    (15:00) Number 4: not all advantage plans are created equal. Some advantage plans are set up as HMO's where you must stay within the network coverage as mentioned earlier. Others are set up as PPO's which will generally pay portion of cost when you go out of network. PPO's give patients more freedom than HMO's.

    (15:25) Number 5: Supplemental plans are better options for people who travel.

    • Medicare Advantage plans usually have a network of doctors in a certain state or portion of the state. If you are traveling, they will cover treatment for medical emergencies but not routine or chronic problems. There are no exceptions. Supplemental coverage, by contrast, can be used with any doctor or hospital that accepts Medicare in the United States.
    • So, let's think about this one for a second. It seems like all the rage currently and we have many clients doing this that are buying an RV and traveling across the country for an entire year. If they had a Medicare Advantage plan there rolling the dice. Where if they had traditional Medicare with a supplemental plan and something happens, they could go to any doctor in the United States that accepts Medicare.

    (16:50) Number 6: one thing to consider is that supplemental plans usually get more expensive as you get older. Most supplemental plans use attained age pricing, meaning the premium automatically goes up for each year you hold it. Something to consider.

    (17:20) Number 7: it can be difficult switching to Medicare with supplemental insurance at a later date. We already talked about this briefly earlier, but during the first six months after you enroll in Medicare Part B which covers doctors and other outpatient services, you're guaranteed the right to buy a supplemental insurance period you won't be asked to answer health questions and you can't be rejected for pre-existing conditions.

    However, if you try to switch after that time period the insurer can charge you more because of health-related issues or deny coverage altogether. A supplemental plan at that point might be impossible or even unaffordable.

    (18:00) Number 8: If you are stuck into a Medicare Advantage plan and desperately need affordable health care coverage because of pre-existing conditions and high drug costs as mentioned earlier. Then you could consider moving outside of the Medicare Advantage plans service area. This could be as easy as moving to another county, several counties away, or even an entire state.

    If you move, you have the right to get supplemental insurance in the new service area as if you were just entering the market. They could not deny you based on age, gender, or pre-existing conditions. You basically get a Medicare do over. But I really caution this, it's obviously not inexpensive to move areas and you have to move or else you're committing insurance fraud.

    It's important to make sure you thoroughly understand all your options because if you choose the wrong plan for your personal circumstance, it may be difficult to change at a later date depending on your particular state of residence. A couple resources for you to check out on your own are the following

    • medicare.gov

    • medicarerights.org

    The Medicare Rights Center is a national, nonprofit consumer service organization and have been around Since 1989. They help people w/ Medicare understand their rights and benefits and navigate the Medicare system.

    Final Disclaimer:

    "We appreciate you joining us today for this episode of The Fiscal Blueprint.

    Be sure to visit fiscalblueprint.com to access the most recent content available including all past shows.

    Remember it's not about the money but about your life!

    Having a mindset and living a life of abundance rather than scarcity will change the direction of your life forever!! Enjoy the Journey!!!

    "Opinions voiced in this recording are for general information only and not intended to offer specific advice or recommendations to any individual. All performance references are historical and no guarantee of future results. All indices are unmanaged and not available for direct investment."

    Berlin, Maryland ~ Lewes, Delaware ~ Eldersburg, Maryland

    Fiduciary, Independent, Registered, Investment Advisor Representatives

    22 min
  • Episode 59: A Quick Discussion on Generations and Millennial Wealth

    This week's episode is short & sweet! Your host and financial coach, Jeff Montgomery, leads an interesting discussion around the millennial generation, which is defined as folks born between 1981 & 1996 and accounts for 22% of the U.S. population. Jeffs discusses some compelling facts surrounding millennial wealth and some misconceptions about their financial well-being.

    Disclaimer: Please do not take advice from me on this show. As a licensed Fiduciary I am only allowed to give advice to clients. So, unless you're a client I can't give you advice because I don't know you. So, think of these as helpful hints and education only. And please before implementing any information or ideas you hear on this show always consult your legal adviser, your tax adviser, and your financial adviser…………. right? that's only common sense.

    Sources, data & commentary from the following article:

    https://www.ftportfolios.com/Commentary/EconomicResearch/2021/10/18/respect-millennials

    Westbury, Brian S., and Robert Stein. "Respect Millennials." First Trust, 18 Oct. 2021,

    Final Disclaimer:

    Be sure to visit fiscalblueprint.com to access the most recent content available including all past shows.

    Remember it's not about the money but about your life!

    Having a mindset and living a life of abundance rather than scarcity will change the direction of your life forever!! Enjoy the Journey!!!

    "Opinions voiced in this recording are for general information only and not intended to offer specific advice or recommendations to any individual. All performance references are historical and no guarantee of future results. All indices are unmanaged and not available for direct investment."

    Berlin, Maryland ~ Lewes, Delaware ~ Eldersburg, Maryland

    Fiduciary, Independent, Registered, Investment Advisor Representatives

    15 min
  • EPISODE 58: Q&A- A Little Bit of Tax Planning, Roth Conversions, & Medicare

    EPISODE 58: Q&A- A Little Bit of Tax Planning, Roth Conversions, & Medicare

    In this week's episode of the Fiscal Blueprint podcast, Nick Craven, CFP® and Jeff Montgomery tackle an interesting and multi-faceted listener question. They dive into a real-world tax planning example where they discuss everything from Roth Conversions to Capital Gains taxes, to Medicare surcharges. Dive into this week's episode to learn more!

    Disclaimer: Please do not take advice from me on this show. As a licensed Fiduciary I am only allowed to give advice to clients. So, unless you're a client I can't give you advice because I don't know you. So, think of these as helpful hints and education only. And please before implementing any information or ideas you hear on this show always consult your legal adviser, your tax adviser, and your financial adviser…………. right? that's only common sense.

    (0:40) Practical planning segment: Joining us today on the fiscal blueprint podcast is Nicholas Craven, CFP®, for our Q&A episode this week.

    This question from the listener is interesting and it can go in a lot of different ways. It gets into a little bit of tax planning gets into a little bit of Medicare and Roth conversions as well.

    Hi, I'm 71 and next year will be required to withdraw from my IRA. I've retired five years ago, and I filed jointly with my wife. Income is above 85,000 per year but next year's income will spike because of my RMD's. The RMDs alone will be about $100,000. I'm considering a Roth conversion, but I understand that that could affect my Part B and Part D Medicare premiums? Also, I have some old company stock with unrealized gain, and I might sell it. How would this affect my part B and D as a realized gain?

    OK, so it looks like his main question is regarding IRMAA otherwise known as income-related monthly adjustment amount. also commonly referred to as Medicare surcharges.

    so many people may not be aware that there are Medicare income brackets. And depending on your modified adjusted gross income or MAGI, you could fall into a higher bracket and pay more than the typical $148.50 per month for Medicare Part B and D.

    (3:00) What is MAGI? It's your AGI or adjusted gross income plus some additions of tax-free interest from municipal bonds

    Let's quickly review the brackets and then we'll get back to the question from the listener.

    For this example, since the listener is married, we will stick with married filing jointly and if you have $176,000 of modified adjusted gross income or less, you're Part B premium is $148.50 for 2021. FYI for a single individual, it's $88,000 or less.

    Now, what happens if you go over that amount?

    (5:30) Now, the interesting thing here is that it is a cliff. If you go $1 over 176k but less than 222k then your Part B premium will be $207.90 plus an additional $12.30 for Part D. And that is per individual. So that is an additional $860 per person per year.

    The next bracket is set at 222K up to $276k. in that case, the yearly amount shoots up to an additional $2,164/yr. per person per year.

    • After that from 276k up to 330k, it's a whopping $3,466/ per person per year

    • And then there's a bracket from 330k up to 750k this adds $4,769 to each person per year.

    • And then one more bracket Over 750k it becomes $5,202 each per year.

    (9:00) It is not permanently set at that amount. It is determined based on your tax return from two years prior two that year. So, for example, in 2021 those tax brackets I just mentioned for Medicare are for your 2019 MAGI income.

    1. You had a windfall that one year for example 2019 and then your MAGI income goes back to less than 176 K for married filing jointly in 2020, then you're 2022 Medicare premiums would return to normal.
    2. Now, this is not the case for the listener question. Because they have an exceptionally large IRA account and those required minimum distributions will push them above the 176 K amount each year.

    (11:00) There also may be some exceptions to being charged the surcharge. For example, what if you retired in 2019 later in the year and showed substantial income and you happen to be 63 years old when you retired in 2019. That is considered a life-changing event, retirement, and you would file form SSA44 and list retirement as an exception to the rule. So, when you turn 65 two years later you would not be subject to the Medicare surcharge premium.

    1. Some other exceptions are the death of a spouse, marriage, divorce, loss of income due to a natural disaster, or loss of a pension.
    2. However, a one-time boost in income due to the sale of a vacation home, for example, is not considered a life-changing event and could check trigger Medicare premium surcharges

    So, if we go back to this example, their income is $85,000 per year let's assume that's the modified adjusted gross income. And next year with required minimum distributions alone that will add another $100,000 of income. So, if we use 2021 brackets, they would be over the 176 K amount and would be subject to the surcharge. With just that income they would each be paying $860 additional per year per person for Medicare Part B and Part D.

    (13:00) Now the second part of his question was about selling company stock and realizing a gain. Unfortunately, they do not mention how much gain and how much stock they would be selling. But assuming it's a long-term capital gain this would be added to the adjusted gross income. And remember the next bracket is not too far off beginning at 222 thousand. So, if they sell a large amount of stock with a gain of $37,000, that will put them into the next Medicare bracket and now they would be paying $2164 per person per year. That's a big jump.

    (14:30) He also discusses a Roth conversion in his question as well. He can do a Roth conversion at his age, in fact, he can even do a Roth conversion after the required minimum distribution age of 72. He would have to satisfy the RMD first and then do the conversion second in that case. But he is currently aged 71 and is considering a Roth conversion. So, he could do a conversion this year and get close to the 176 K bracket, I wouldn't get too close, give yourself some wiggle room. Remember a conversion from a Traditional IRA to a Roth is considered income that year so it will go to the modified adjusted income calculation. He would have to be careful if he's also selling the stock at the long-term capital gain because that too flows down to the modified adjusted income category.

    So, he has a lot of moving parts that if his sole goal is to avoid the Medicare surcharge, he's going to have to be careful this year.

    (16:25) One interesting planning idea as a possibility for him is to forget about the Roth conversion idea for this year and he may be able to sell some stock this year at a 0 percent gain. Capital gains have their own tax bracket and for married filing jointly taxable income below $80,800 is that a 0% capital gains. Well right now his income is at 85 5, less a standard deduction of 25,100, assuming he does not itemize, brings his taxable income to right around 60,000. So, he may be able to recognize roughly $20,000 of long-term capital gains at 0% this year and then consider selling some of the rest of the stock next year. So essentially splitting the sale of the stock over 2 tax years. Again, this would not work if he were also trying to do a Roth conversion in the same year.

    Along those same lines, maybe he wasn't quite ready to sell the stock. He could employ a strategy of tax gain harvesting for this year. He could sell it, recognize the game, and buy it back right away. The pending on how much he sells he could fall into the zero percent tax bracket or maybe even the 15% capital gains tax bracket, but it is important to note that there is no wash sale roll when you are tax gain harvesting. The wash sale rule only applies when you are tax-loss harvesting. If you're selling a stock at a loss and then buying that same exact stock back right away or within 30 days, that is considered a wash sale and is illegal. There is no water shell roll when you recognize a tax gain. So, in this strategy, he could sell some stock at a gain and maybe pay 0% if he stays underneath that bracket and he could buy the stock back the same day.

    And then later on when he sells that stock it would have a higher cost basis and potentially less taxable gain.

    Final Disclaimer:

    "We appreciate you joining us today for this episode of The Fiscal Blueprint.

    Be sure to visit fiscalblueprint.com to access the most recent content available including all past shows.

    Remember it's not about the money but about your life!

    Having a mindset and living a life of abundance rather than scarcity will change the direction of your life forever!! Enjoy the Journey!!!

    "Opinions voiced in this recording are for general information only and not intended to offer specific advice or recommendations to any individual. All performance references are historical and have no guarantee of future results. All indices are unmanaged and not available for direct investment."

    Berlin, Maryland ~ Lewes, Delaware ~ Eldersburg, Maryland

    Fiduciary, Independent, Registered, Investment Advisor Representatives

    23 min
  • Episode 57: Tax Planning Strategies, Part 4: HSA's and Understanding the QBI Deduction

    We understand tax planning is not a fun subject to talk about. Most of us just hand over a bunch of stuff to our accountants at tax time and let them figure it all out. However, we firmly believe it's important to have a basic understanding in this area so you can ask the right questions!

    On our final podcast of this series on tax planning ideas, we will talk about HSA accounts and then we'll discuss a provision in the TCJA called the QBI deduction, which can provide a generous tax break for businesses that qualify to claim it.

    So far, we have talked about:

    1. the popular idea of Roth conversions on episode 54
    2. QCD's on episode 55
    3. Bunching strategies and DAF on episode 56

    Disclaimer: Please do not take advice from me on this show. As a licensed Fiduciary I am only allowed to give advice to clients. So, unless you're a client I can't give you advice because I don't know you. So, think of these as helpful hints and education only. And please before implementing any information or ideas you hear on this show always consult your legal adviser, your tax adviser, and your financial adviser…………. right? that's just common sense.

    (1:10) Practical planning segment: How Does a Health Savings Account Work?

    We know what you are probably thinking: is there really another health insurance acronym I need to learn?

    What Is An HSA? A health savings account (HSA) account specifically created for health-related expenses. Put simply, it is a way for you to SAVE funds for medical expenses at a later date. You might be saying, 'sounds great! But what does it have to do with my taxes?'

    Well, these are the best tax advantaged accounts in the tax code because they are tax deductible when funded, and tax free when withdrawn! One of the great things about an HSA is that any unused funds you have roll over from year-to-year, and these funds can be used for health-related expenses during retirement.

    Let's get into a few particulars of these accounts:

    (4:15) Can I Open an HSA with Any Health Plan? In order to open an HSA, you must have a high deductible health plan (HDHP) that meets the following criteria for 2021:

    For an individual plan:

    $1,400 deductible (or higher)

    $7,000 out-of-pocket maximum (or less)

    For a family plan:

    $2,800 deductible (or higher)

    $14,000 out-of-pocket maximum (or less)

    (6:20) Can I Contribute as Much to My HSA As I Want? Unfortunately, NO. The IRS sets some limits to how much you can save in your HSA. For 2021, these limits are increasing slightly:

    $3,600 for an individual

    $7,200 for a family

    However, if you are 55 years or older, you are in luck! The IRS lets you add an extra $1,000 to these figures.

    (8:20) What Can I Use My HSA Funds For? Funds in your HSA can only be used for "qualified medical expenses." According to the IRS, medical expenses are defined as "the costs of diagnosis, cure, mitigation, treatment, or prevention of disease, and the costs for treatments affecting any part or function of the body" and includes "the cost of equipment, supplies, and diagnostic devices needed for those purposes."

    Wondering what that means? It is just a fancy way of saying health-related expenses. This includes things like:

    • Doctor visits
    • Prescription Drugs
    • Medical supplies
    • Long-term care costs
    • Chiropractic services
    • Contact lenses
    • Lab tests
    • Dental treatment
    • Hearing aids
    • Psychiatric care

    The entire list is extensive! Be sure to note that these expenses aren't just medical, but also include dental and vision!

    CAUTION: Be careful about using your HSA funds for non-qualified expenses. If you do, you'll end up paying income tax on the amount used, as well as a penalty tax (of 20 percent!!) for making a non-qualified withdrawal.

    (10:40) Can I Use My HSA Funds on My Spouse and Kids? You can spend your HSA funds on three groups of people.

    1. Yourself and your spouse
    2. Any dependents you claim on your tax return
    3. Any person you could have claimed as a dependent on your tax return (with a few exceptions)

    Interesting: Even if your spouse and children aren't covered by the insurance plan associated with your HSA, you can still use your HSA funds to cover any of their qualified medical expenses.

    (12:20) Now let's switch gears a bit and talk about the QBI deduction. I warned you that this might get a little technical right?

    The qualified business income deduction (QBI) is a tax deduction that allows eligible self-employed and small-business owners to deduct up to 20% of their qualified business income on their taxes.

    In general, total taxable income in 2020 must be under $163,300 for single filers or $326,600 for joint filers to qualify. This is Section 199A of the code.

    It allows owners of pass-through businesses to claim a tax deduction worth up to 20 percent of their qualified business income.

    A pass-through business is a sole proprietorship, partnership, LLC, or S corporation. The term "pass-through" comes from the way these entities are taxed.

    Unlike a C corporation, which pays corporate federal income taxes, a pass-through entity's business income "passes through" to the owner's individual income tax return.

    Qualified business income is the business' net income, with a few exceptions. QBI doesn't include:

    • investment income, such as capital gains or losses, dividends, or interest
    • income from businesses located outside of the U.S.
    (15:40) Who qualifies for the QBI deduction? Pass Through business only, but there are other restrictions.

    SSTB: If your business is a "specified service trade or business" SSTB, your QBI deduction may be limited or disappear entirely once your total taxable income reaches a certain limit.

    A specified service trade or business (SSTB) is a service-based business (other than engineering or architecture) where the business depends on the reputation or skill of its employees or owners.

    That's a broad definition, but it includes law firms, medical practices, consulting firms, professional athletes, accountants, financial advisors, performers, investment managers, and more.

    If you have a specified service trade or business you can determine whether you get the full 20 percent deduction, a limited deduction, or no deduction at all based on your total taxable income.

    OK so what's the mean? When you're a small business what determines taxable income

    Total taxable income refers to all the taxpayer's income before the QBI deduction is applied. This may include wages from other jobs, wages earned by your spouse (if married and filing a joint return), interest and dividends, capital gains, rental income, and more. For most taxpayers, this will be the adjusted gross income shown on Form 1040.

    NON-SSTB If you don't have a specified service trade or business: If your business is not an SSTB, but you have taxable income greater than $207,500 for a single filer or $415,000 for a married couple filing jointly, your QBI deduction is limited to the greater of:
    • 50 percent of your share of the W-2 wages paid out in the business, or
    • 25 percent of your share of the W-2 wages paid out in the business, plus 2.5 percent of qualified property
    Bottom line: If all of this sounds confusing, it is. The QBI deduction provides a generous tax break for businesses that qualify to claim it. However, as the rules and definitions above make clear, determining who can claim the QBI deduction and calculating it is no easy task.

    While it's always a good idea for small business owners to read up on available deductions and get a good understanding of which tax breaks might apply to them, when it comes to calculating the QBI deduction, you may want to leave that to your accountant.

    Final Disclaimer:

    "We appreciate you joining us today for this episode of The Fiscal Blueprint.

    Be sure to visit fiscalblueprint.com to access the most recent content available including all past shows.

    Remember it's not about the money but about your life!

    Having a mindset and living a life of abundance rather than scarcity will change the direction of your life forever!! Enjoy the Journey!!!

    "Opinions voiced in this recording are for general information only and not intended to offer specific advice or recommendations to any individual. All performance references are historical and no guarantee of future results. All indices are unmanaged and not available for direct investment."

    Montgomery Financial Services- Retirement Planning, Financial Advisor, Holistic Financial Planning- Lewes, Delaware ~ Berlin, Maryland ~ Eldersburg, Maryland

    20 min
  • Episode 56: Tax Planning Strategies, Part 3: Donor Advised Funds & Bunching Strategies

    This episode marks part 3 of our 4-part series on tax planning strategies! This week, Jeff Montgomery and co-host Nick Craven briefly talk about a Donor Advised Fund, (DAF) which in its simplest form allows donors to make charitable contributions to a public charity and receive an immediate tax benefit. Later in the episode, Jeff and Nick focus the bulk of their discussion talking about bunching strategies.

    (0:45) Practical Planning Segment:

    A quick disclaimer here… after all we are talking about taxes! Please do not take advice from me on this show. As a licensed Fiduciary I am only allowed to give advice to clients. So, unless you're a client I can't give you advice because I don't know you. So, think of this as helpful hints and education only. And please before implementing any information or ideas you hear on this show always consult your legal adviser, your tax adviser, and your financial adviser…………. right? that's just common sense.

    So, let's tackle the concept of a Donor Advised fund (DAF.) You know, last week we talked about qualified charitable distributions directly from your IRA account that can be done over the age of 70 1/2. If you are of RMD age which is currently 72 the Q CD will satisfy your required minimum distribution… as long as you do the QCD first. And we mentioned that this would be mainly for people that are charitably inclined.

    Well let's take that one step further!

    In its simplest form, a DAF donor advised fund allows donors to make charitable contributions to a public charity and receive an immediate tax benefit.

    They are held through a 501C3 organization. An account is set up for the donor fund, then they donate assets such as cash, securities or real estate to the fund. Donors are eligible to take an income tax charitable deduction at the time of the contribution. They then can grant money to any charities of their choosing, but they don't have to do it right away. Donors can build up the fund overtime and make larger grants to charities in the future while immediately enjoying the tax advantage of their gifts into the fund.

    (4:00) Advantages:

    1. Income tax deduction in most cases.
    2. Give a variety of different assets. Cash, securities, RE
    3. No capital gains tax when appreciated assets are sold
    4. No estate taxes
    5. Tax free growth
    6. AMT reduction: may reduce exposure to the AMT

    OK so this leads to talking about what's commonly referred to as bunching strategies.

    Think about approaching tax planning two years at a time, not just for the calendar year with this strategy.

    Folks Nick and I think about approaching tax planning actually over a much longer time frame, a lifetime. Part 1 of this series we discussed how important tax planning is vs tax preparation.

    Micro thinking looks at tax preparation for the current year and how can you save taxes this year. Macro thinking looks at tax prep over many years or even a lifetime and asks the question "how can I save taxes over a lifetime?"

    (7:00) Bunching strategies: So, let's understand a few concepts about itemized deductions versus taking the standard deduction and then I think this will shed some light on how a bunching strategy could possibly help you. For 2020 married filing jointly the standard deduction is $25,100. If you are over the age of 65 you do have additional deduction of $1350 each. For a total of $27,800

    The standard deduction is so high now that most people don't even itemize because their itemized deductions do not exceed the standard deduction. Last week you mentioned that approximately 90% take the standard deduction nowadays.

    So, the basic strategy here is to take the standard deduction in one year and then itemize bunched deductions the next year.

    Example, if possible, pay real estate taxes, mortgage payments, medical expenses, student loans, state taxes, and fund charitable contributions as much as possible in one year.

    • Many counties will let you split up your yearly property tax bill for example you can pay ½ in July and the other ½ in December. And they usually give you a grace period. So, if you pay the second half by December 31st your good……but what is you don't pay it until Jan the following year and took advantage of the grace period. Well that another tax year!
    • Maybe there are medical procedures that you want to get but you keep putting off. With proper planning you could possibly accelerate them into the current tax year and maybe that year your spouse had some other significant medical producers done. Now you have a larger medical expense deduction. Remember the floor of 7.5% of AGI

    (11:40) Coachable Segment: We started off talking about donor advised funds which lead into our discussion about bunching strategies. Well imagine if we combine those two, so here's idea number one

    Idea #1: Bunching donations in a single year to receive the maximum tax benefit. So, a gift to a donor advised funds are tax deductible (but you would still have to itemize), so donors can combine two or three years of charitable contributions in one calendar year and exceed the standard deduction in that year. They then can use the assets to consistently support their favorite charities even in years when they take the standard deduction.

    (12:00) For Example: MFJ couple that normally gives $5,000 per year to charity. This couple could benefit from bunching their charitable contributions into 15,000 donation every three years instead of $5,000 every year.

    Let's say they have $10k max deduction of SALT taxes and $8,000 mortgage interest. Plus, the normal $5,000 to charity only gets then to $23,000. The standard deduction is $25,100 and even more if they are over 65

    In this example the couple itemizes in years one and four and takes the standard deduction in years 2,3,5 and six. So, in years 1 and 4 with the $15,000 DAF contribution they're at $33,000…. well above the std deduction on those years and all the other years they are getting the MAX std deduction.

    (14:10) Idea # 2: Combine the bunching of medical expenses along with the QCD if over RMD age of 72

    Keep AGI low. Remember we have a 7.5% floor of our AGI to deduct medical expenses. How do you keep the AGI low? How about a QCD we discussed last week. If your over age of 72 and have to take an RMD and don't need it or want it (and would like to make a charitable donation) complete a proper QCD, which is NOT considered income since it went straight to the charity and in turn does not show up on your tax return as AGI.

    If we keep our AGI lower, it means we can deduct more of the medical expenses that we just bunched into one year.

    REMEMBER, VERY IMPORTANT: Always consult your CPA!

    Final Disclaimer:

    "We appreciate you joining us today for this episode of The Fiscal Blueprint.

    Be sure to visit fiscalblueprint.com to access the most recent content available including all past shows.

    Remember it's not about the money but about your life!

    Having a mindset and living a life of abundance rather than scarcity will change the direction of your life forever!! Enjoy the Journey!!!

    "Opinions voiced in this recording are for general information only and not intended to offer specific advice or recommendations to any individual. All performance references are historical and no guarantee of future results. All indices are unmanaged and not available for direct investment."

    19 min
  • Episode 55: Tax Planning Strategies, Part 2: What is a QCD?

    This week, your host Jeff Montgomery alongside special guest Nick Craven, CFP®, continues the discussion on tax planning. Specifically, they tackle all things surrounding Qualified Charitable Distributions (QCD's.) What are the benefits? QCD's lower adjusted gross income, but why is that important? All these questions are answered, and more, on this week's episode of the Fiscal Blueprint® podcast.

    (0:30) Practical planning segment:

    A quick disclaimer here, after all, we are talking about taxes: Please do not take advice from me on this show. As a licensed Fiduciary I am only allowed to advise clients. So, unless you're a client I can't give you advice because I don't know you. So, think of these as helpful hints and education only. And please before implementing any information or ideas you hear on this show always consult your legal adviser, your tax adviser, and your financial adviser…………. right? that's just common sense.

    Continuing our tax planning discussion today we are going to talk about some ideas that you may not have heard of. Or maybe heard of but not fully explored

    Last week we talked about the very popular strategy of Roth conversions, and we said this may make sense for some folks because I think most people believe tax rates are going to increase in the future.

    We mainly spoke about income tax rates increasing. However, there are other ways that they could increase taxes in a very secretive or stealthy way. And one of those ways I want to talk about is the consumer price index. I don't think a lot of people understand how many things are tied to the CPI.

    (2:45) And the big change as of 2018 within the tax cut and JOBS Act is that they are now using a new consumer price index that will eventually raise your taxes. And that new index is called chained CPI.

    The first thing to understand is that chained CPI substitutes cheaper products and services and thus measures inflation more slowly than the traditional CPI calculation. So, what this does is it has the effect of raising taxes because personal tax rates, tax credits, and the standard deduction are linked to this new chained consumer price index measurement period and this measurement measures the growth in the cost of living more slowly than the old law that used the traditional consumer price index.

    So again, something to be aware of because we typically think of tax increases through very specific and measurable tax rate increases for example the 36% tax bracket will go up to 39.6% in 2026, however this, in my opinion, is a deceptive way and as I mentioned earlier, stealthy way, of raising our taxes without folks really paying much attention to it. And there are many ways in the tax code that our politicians do this.

    so just because you don't necessarily see a tax bracket rate increase or an actual tax bracket shrink in terms of what income levels are taxable at certain rates, doesn't mean that you're not going to pay higher taxes in the future!

    Let's talk about some other (not so well known) ways you could reduce your overall tax burden in RETIREMENT.

    Today's show is about QCD's which stands for qualified charitable distributions.

    (4:40) Changes to the charitable deduction: Under the Tax Cuts & Jobs Act, cash contributions to charities were reduced to 50% of AGI (Adjusted Gross Income). That was widely considered a disincentive to contribute to charities. That was corrected later and extend through 2021 by the CAA and it is now 100% of adjusted gross income.

    However, with an estimated 90% of taxpayers claiming the standard deduction anyway, much of the tax incentive to donate is taken away even with this change.

    So, for folks that are terribly inclined, proper planning can be very impactful here!

    We will get into bunching strategies on the next podcast but in today's example, we want to talk about qualified charitable distribution's or QCDs.

    (7:00) Definition: A QCD is a direct transfer of funds from your IRA custodian, payable to a qualified charity. ... In addition to the benefits of giving to charity, a QCD excludes the amount donated from taxable income, which is unlike regular withdrawals from an IRA.

    Let's clarify just a little bit of confusion that comes with QCDs. As we know required minimum distribution from your IRA account now starts at age 72. That was from the secure act.

    However, you can do a QCD beginning at age 70 ½, and the total amount of the QCD could be up to $100,000 directly from your IRA account to the charity. Not the year you turn 70 ½!!! Only after you have already turned 70 ½!

    Confusing right………because the OLD RMD rule was the year you turned 70 ½! So, pay attention to that if you are considering a QCD and have not yet turned 70 ½.

    I have noticed it is rare that a QCD happens before age 72 or in this case after age 70 ½ because the main strategy here is that the QCD satisfies the required minimum distribution from your IRA.

    So, at age 72 when you're required to take a withdrawal out of your IRA and you are terribly inclined, you could simply send that amount or any amount up to $100,000 directly to the charity and you will not be charged income tax on that distribution.

    This may make sense if you are in a high tax bracket because it drives down taxable income, you could benefit even further if you are married, and your spouse is also eligible to use their IRA for a QCD.

    (13:30) Benefits:

    • The obvious one that jumps right out is that amount sent to the charity does not show up as taxable income, right?
      • It goes straight to the charity! You never received it!
      • If you took possession of the RMD's first and then contributed to the charity as cash contributions, you are limited. Because in that case, you would have to itemize to get the full deduction!
    • Lowers AGI! Why is this important?
      • Could save you on IRMAA surcharges for Medicare part B and D
      • Much less likely, but it could also save you on the Social Security torpedo tax, where the provisional income calculation determines whether you will be subject to Social Security taxes. Part of that calculation is IRA withdrawals.
      • Could possibly help you qualify for more medical expense deductions, right? Medical expenses are only deductible over 7 ½% of AGI. Well, if AGI is lower then possibly more medical expenses could be deducted.
    • Also helps those that are claiming the standard deduction (90% are!) but still want a charitable deduction. They could do a QCD

    (15:30) Coachable Segment: Important Points to remember

    • Sounds simple but they must come out of the IRA by the RMD deadline
    • Must do before RMD is taken out or it won't Satisfy the RMD. So please if you are going to do a QCD make sure you do this first! Before the RMD! "First dollars out rule"
    • The only people that qualify--first of all, it's only for IRAs, not for plans. People get mixed up with that. Rollover!!
      • Why are you leaving your 401k at an old employer anyway?
    • Can only be made from the taxable portion of IRAs. Sometimes there is after-tax money in an IRA. This can be a nightmare. So, pay attention to that.
    • Beware of the annual limit on QCDs from all IRAs cannot exceed $100,000 per individual!
    • Helps to avoid potential IRMAAA surcharges on Medicare Part B
    • QCD is better than a deduction because it decreases your AGI, so that increases other benefits tied to AGI like the possibility of 0% capital gains tax, increase medical deduction, more state tax deductions.
    • Also, we are not going to get into this too much on this podcast but beware of the QCD anti-abuse rule. Meaning you can't take an IRA deduction if you are still working and contributing to an IRA and do a QCD at the same time.
    • This must be reported on your tax return Line 4a and 4b. Make sure you look at your 1099 issued from the custodian. It could be missed and reported as a regular distribution and not a QCD. There's no coding on a 1099. Every 1099-R has all kinds of numerical and alpha codes to tell the government what kind of distribution it is. There is no code, there never was for some reason, for a QCD.

    Final Disclaimer:

    "We appreciate you joining us today for this episode of The Fiscal Blueprint.

    Be sure to visit fiscalblueprint.com to access the most recent content available including all past shows.

    Remember it's not about the money but about your life!

    Having a mindset and living a life of abundance rather than scarcity will change the direction of your life forever!! Enjoy the Journey!!!

    "Opinions voiced in this recording are for general information only and not intended to offer specific advice or recommendations to any individual. All performance references are historical and have no guarantee of future results. All indices are unmanaged and not available for direct investment."

    26 min
  • Episode 54: Tax Planning Strategies, Part 1: Roth Conversions

    EPISODE 54: Tax Planning Strategies Part 1: Roth Conversions

    Have you ever heard of the tax torpedo? Or how about the ticking tax time bomb? Maybe you've heard it called the tax freight train?! All these terms sound pretty scary. So, what can you do about them?

    In this multi-part series, we discuss some popular, and not so popular, tax planning strategies that may help you mitigate potential tax increases that most experts agree are heading our way!

    Disclaimer: Please do not take advice from me on this show. As a licensed Fiduciary I am only allowed to give advice to clients. So, unless you're a client I can't give you advice because I don't know you. So, think of these as helpful hints and education only. And please before implementing any information or ideas you hear on this show always consult your legal adviser, your tax adviser, and your financial adviser………….right? that's just common sense.

    (1:30) Practical planning segment: Rather than get into all the reasons why we think taxes are going to go up in the future let's just assume that they will be right? It's hard to see them actually going any lower. And we already know the tax cuts from the 2017 Tax Cuts & Jobs Act expire in 2026.

    Even if the current administration does nothing to raise taxes. They will be going up in 2026 as part of the TCJA of 2017. I want to focus this show on some popular and not-so-popular tax planning strategies. And I think the first one we should tackle is the ever so popular, for good reason, Roth conversions.

    In later shows we'll talk about some other less popular techniques like QCD's & DAF's and get into some bunching strategies. However, today let's talk about Roth conversions.

    (4:15) What is a Roth conversion? in its simplest form a Roth conversion is moving money from a traditional pretax IRA account into a Roth (potentially tax-free) IRA account. I'll get to why I said potentially tax-free in a minute!

    Sounds simple, doesn't it? And for all practical purposes, it is very easy. Many custodians (that hold your accounts) can simply do this with a stroke of a key.

    But why? Why would you want to do a Roth conversion? There are many reasons that you may consider completing a Roth conversion, but the number one reason is you think tax rates are going to be higher in the future. You would rather pay taxes now at a lower rate now than in the future ……….at a potentially higher rate.

    This of course, not only has tax implications for you, but also potentially for your heirs that will be inheriting your IRA or Roth IRA accounts! And by the way that's another reason folks consider doing Roth conversions while they are alive!

    Rather than having their non-spouse heirs, such as their children, inherit their IRA (and as of 2020 under the new Secure Act (non-spouse and non-eligible designated beneficiaries) they can no longer stretch out those distributions on their life expectancy) they now have to empty the account within 10 years…………accelerating the distributions and paying more taxes!

    When does the 10 year rule start? The 10-year clock starts the year after the year of death.

    If most or all of it was already in the Roth account, it would still have to be taken out over 10 years by the non-spouse (non-eligible) beneficiary……………. however, it would all be tax-free! And the smart ones would leave it there for 10 years and continue to get tax-free growth compounded over that time! WOW!!!

    (16:02) how do you go about completing a Roth conversion? We will get into the pros and cons of should you complete a Roth conversion in a second. But if this is a strategy that you want to employ then the first step is to make sure you have a traditional IRA with $$$ in it to convert and you have already opened a Roth IRA account READY to receive those funds.

    (As a side note, there are traditional IRAs that have both pre-tax and post-tax monies in them. That is for an entirely different discussion and tax planning opportunity)

    If you already have both accounts open it would also probably help if they are at the same custodian for example a TD Ameritrade or a Charles Schwab or a Fidelity that is holding both accounts. It can be done if they are both not at the same custodian however, it adds complexity and time to the process.

    I like to keep things simple! As I mentioned earlier it's often as simple as hitting a keystroke and moving money from one account to the other.

    You can also transfer the securities "in-kind" into the Roth account. This may save some transaction costs in placing trades and liquidating the securities to cash and then moving the cash directly to the Roth IRA. But both essentially do the same thing!

    (22:00) There are many proponents and many articles written about all the benefits of Roth conversions and many pundits that think everybody should consider Roth conversions!

    The pros are simple: If you think your tax rates in retirement are going to be even 1% higher than your current tax rate now, then a Roth may make sense.

    Many folks say but wait a second Jeff, I'm in a much higher tax bracket while I'm working and when I stop working, I'm going to be in a much lower tax bracket!

    Well, how do you know you are going to be in a lower tax bracket in retirement? If you have 10 or 15 years before you are ready to retire, we have no idea what tax brackets could be and what they could look like.

    Also, keep in mind if your traditional IRA is rather large and this includes 401(k)s and other pre-tax accounts and you have 10 or 15 years prior to retirement, you are most likely still adding to those accounts through pre-tax contributions and getting market growth within your investments in those accounts. At age 72 under current law, you must start withdrawing money out of those accounts.

    Some of these accounts could be extremely large, and right at the time when you are forced to take the money out through required minimum distributions.

    Think about potential tax rates and all the other income you may be receiving such as Social Security, pension, possible rental income at age 72 … at the same time you must take large distributions that will be all taxable and added on top of your existing income at potentially exorbitant future tax rates!

    Those withdrawals are considered INCOME! They go right to your AGI!

    (24:35) Other Stealth taxes are linked to your AGI and many opportunities for tax deductions are also linked to your AGI:

    • IRMAA which is a surcharge on your Medicare Part B and part D payments. If those RMD's are large enough your Medicare payments will increase substantially. In the top bracket, the surcharge is over 300% per person.

    • Of course, whether or not your Social Security is taxed is based on MAGI.

    • Deductions tied to your AGI may be limited if your AGI is higher because of all those RMDs; Medical Exp have a floor of 7.5% of AGI……if Your AGI was lower in retirement you have more availability for deductions

    • The Widows penalty- When one spouse dies the following year, the widow moves to the Single Filer tax bracket. Guess what? Those brackets are much lower and Large RMD's in those later years leads to way more taxes! A Roth solves all those issues.

    (28:00) A lot of time we talk about the good, the bad, and the ugly when it comes to Roth conversions. We already covered the good, so let's cover the bad…

    The Bad: Well, any money converted and transferred from your traditional pretax IRA into your Roth IRA will be taxed in the year of conversion. Most people don't like that! They don't like paying any more taxes than they have to pay. And that's a really hard decision to do a conversion and decide to pay more taxes! We are so trained in our society to think "Micro" in terms of taxes , rather than "Macro". Even most accountants try to focus on how you can save taxes this year, thinking small and micro. Versus how you can save taxes over a lifetime and potentially for your heirs as well!

    The Ugly: Well, you cannot undo them any longer. Once it's done! It's done. This used to be called -recharacterization. Kind of like a re-do. But no longer allowed

    Could trigger taxes on other sources of income such as Social Security. The simple act of converting creates taxable income. It increases your AGI! That taxable income added to other income +1/2 of your Social Security will determine whether your Social Security is taxable.

    Another one to look out for is your IRMAA! If you were already on Medicare or even a couple years prior to Medicare age and you do a large Roth conversion, it could increase your part B Medicare premium and part D prescription drug plan. This is called IRMAA which is Income Related Monthly Adjustment Amount (IRMAA). IRMAA is an extra charge added to your premium and the IRS looks back two years to determine whether you are subject to this extra charge.

    (30:00) Coachable Segment: 6 Other Benefits of Roth Conversions

    1. No lifetime required minimum distributions.
    2. Spousal rollovers can add tax free accumulation, they continue to be exempt from lifetime requirement distributions.
      1. Surviving spouses are exempt from the 10-year rule
    3. Surviving spouse received tax free retirement income! This is HUGE- Widows Penalty does not apply to a Roth. Why? ITS ALL TAX FREE
    4. The elimination of the trust tax problem
      1. Applies to discretionary trust under the 10-year rule
      2. Inherited funds are protected in the trust even after 10 years, even though inherited Roth funds still must be paid out to the trust after 10 years
    5. Elimination of accelerated income tax to beneficiaries after 10 years
      1. If funds were left in a traditional IRA, they must all be withdrawn in 10 years which accelerate income tax and causes other income to be taxed at higher rates
    6. For larger us states ones that are subject to federal and state estate tax, it can lower the taxable estate.
      1. The reason for this is the taxes paid on the conversion reduces estate and eventually income tax paid by the beneficiary

    Final Disclaimer:

    "We appreciate you joining us today for this episode of The Fiscal Blueprint.

    Be sure to visit fiscalblueprint.com to access the most recent content available including all past shows.

    Remember it's not about the money but about your life!

    Having a mindset and living a life of abundance rather than scarcity will change the direction of your life forever!! Enjoy the Journey!!!

    "Opinions voiced in this recording are for general information only and not intended to offer specific advice or recommendations to any individual. All performance references are historical and no guarantee of future results. All indices are unmanaged and not available for direct investment."

    37 min
  • Episode 53: Inflation- It's Not Transitory!

    So, let me ask you a question, how many times in the last couple of months or so have you heard the word inflation?

    I bet it's a lot. It seems like every other article is written about inflation and if you turn on any of the popular business channels even your nightly news, it's mentioned many times during the broadcast.

    As a matter fact if you Google the word inflation, you'll get 180 million results! If it took you two minutes to read each result. It would take you 685 years to read them all!

    I think it's worthwhile to study inflation and understand exactly what it is and how to protect yourself from its effects and that's what we're going to do on today's podcast!

    Disclaimer: Please do not take advice from me on this show. As a licensed Fiduciary I am only allowed to give advice to clients. So, unless you're a client I can't give you advice because I don't know you. So, think of this as helpful hints and education only. And please before implementing any information or ideas you hear on this show always consult your legal adviser, your tax adviser, and your financial adviser…………. right? that's only common sense.

    (1:00) Practical Planning Segment: I am joined today by our resident CFP® and VP of Advisory Services, Mr. Nicholas Craven!

    We have news for you, inflation is not transitory! And that's been a big buzzword from the federal reserve. They are constantly putting out statements in the news media saying that this inflation spike that we have had recently is transitory meaning it's not going to last.

    (3:00) US consumer prices were up by 5.4% for the year ending June 2021, so naturally, it is at the center of attention from many investors.

    Contrary to popular belief inflation has nothing to do with higher wages, government spending, economic growth, it is all about printing money.

    The famous economist Milton Friedman, my favorite economist of all time says, "inflation is always a monetary phenomenon."

    (4:30) The definition of inflation is "too much money chasing too few goods."

    So, you can understand why people think that inflation is transitory.

    Looking at these numbers of inflation is at 5.4% we must also keep in mind that we are comparing the most recent months to very weak months one year ago during the pandemic. So, I do believe that. And I believe that when we start seeing numbers comparing one month over a previous month and the previous month was higher production and economic output will start to see those numbers level off a bit.

    However, if we look at the last three months, we see that inflation is up as measured by the CPI and an annualized rate of 8%. So obviously it's not all about a base effect.

    And obviously, our supply chains were broken during the pandemic. We had supply chain problems so there is some truth to that remember the definition is too much money chasing too few goods.

    However, it all comes back to the printing of money. Remember Milton Friedman said it is always a monetary phenomenon. The Fed has increased the money supply measured by M2 by 30%! That is the largest increase in the money supply since World War II in the 1940s.

    (7:30) What is M2? Now you're taking me back to my economics classes in college. M2 is a measure of the amount of money that we have as a society and it includes cash, checking deposits, any money that's easily convertible and can easily be turned into spendable cash. Things like a savings account, money market account, mutual funds. M2 to include all of this because it can be easily converted and spent.

    When you increase the money supply the value of the dollar must come down! I think the best way to illustrate this is through an example.

    If we have an economy where we have $10 and 10 apples. Each Apple cost what? One dollar!

    If the Fed increases the money supply from $10-$13 which is a 30% increase, but we only still have 10 apples, what do you have now per Apple? $1.30, correct. That is inflation!

    Now if you look at what happened last year where we damaged our supply chains, and I would argue 100% self-inflicted. We damaged our output. So, if we carry this example forward and now, we increase the money supply by 30% to $13 but we can only produce five apples. Each apple now cost $2.60!

    Now the reason they say that inflation is transitory is that they are assuming our output will increase back up to the 10 Apple count but remember the money supply is still up 30%. That's permanent and not transitory!!!!!!

    You say that's why we are making the argument that inflation is here to stay because the federal reserve has increased the money supply by 30%. And as I mentioned earlier that's the largest increase since World War II.

    (11:00) There are some people out there that also believe in modern monetary theory. Basically, this is Keynesianism. John Maynard Keynes was an economist that believed in deficit spending. But this deficit spending is Keynesianism on steroids!

    The argument is that deficit spending is good! Print and spend as much money as you want, and we will have no bad effects!

    Their argument is that if you increase the dollars from $10-$13 a 30% increase, someone like Jeff Bezos will come along and increase or supply from 10 apples to 13 apples! They argue just by increasing the money supply we will encourage higher output!

    This is a fallacy. It's a pipe dream. It has never worked in history. If more output were available, we would do it whether there was more money in the economy or not.

    So, this is why we say inflation is here to stay! Eventually, prices across the board will most likely rise by 30%. We don't know how long that will take, it could take three years maybe five years, maybe six years. If it takes six years that would be 5% inflation per year

    So now that we have set the stage and hopefully understand that some inflation is here to stay what can we do about it and what strategies are available to mitigate the effects of an increase in prices!

    We call this the silent income killer. Because if you don't have income that keeps up with inflation… you're losing money!

    Let's go talk about some strategies to handle inflation in our coachable segment!

    (14:50) Coachable Segment:

    Let's talk about a few popular ideas about fighting inflation. Some of these probably could be considered myths. And then we'll talk about other ideas that are backed by evidence.

    I think one of the most popular ideas floating around is to buy gold, precious metals, or even commodities for that fact. I know Nick recently did a coaching class where he looked at gold as an inflation-fighting mechanism, and let's just say we don't think this is a sufficient strategy.

    (17:30) Increase your earning power! Obviously, this is easier said than done. It's obvious that if you maintain your lifestyle but earn more money than that is a successful strategy to battle inflation. But how do you earn more money? Really comes down to, if you're still working, investing in yourself. Whatever occupation you are in, whether it's a white-collar job or a blue-collar job there are things that you can do, classes that you can take, that you can invest in yourself and improve your credentials!

    Now the big problem is if you are already retired and not going back to work and have no desire to work even part-time or maybe you can't work because of a disability, how do you fight inflation?

    Do you have or have you thought about developing an income plan that has some type of inflation protection within it? This may be just simply Social Security increasing with a COLA. Maybe your existing pension has a COLA adjustment? If you don't have an existing pension, you can create one on your own using an annuity with a COLA adjustment.

    (21:40) Next, let's talk about your investment plan. Do you have an investment plan? Obviously to have an investment plan you need to have investments, but are those investments properly allocated in a variety of asset classes that have shown to outpace inflation.

    • Dimensional fund advisors, DFA has released an article discussing asset classes that have outpaced inflation and the study goes back to 1927. They studied 23 asset classes and they measured real returns which equal net of inflation. All 23 asset classes except one month treasury bills had positive average real returns in high inflation years. Some asset classes such as small-cap value and large-cap value, value asset classes significantly outpaced inflation. Does your investment plan include asset classes of large and small value?
    • It's important to note that we're not talking about putting an entire investment portfolio in more volatile asset classes, it must be meticulously designed and built based on each client's risk tolerance.

    (25:59) What about tax planning? I think most people understand that taxes are an expense. And I personally believe tax inflation is on the rise! It's just a different way of saying tax increases most likely are going to happen in the future. As a matter fact, TCJA expires in 2025. We know that even if the current administration doesn't raise taxes before 2025, taxes are going up in 2026. Because the Trump tax cuts expire.

    Do you have a tax plan? A proactive tax plan looking at saving taxes not on just a yearly basis but over a lifetime?

    (28:00) A fourth possible strategy is considered inflation-protected securities. These are commonly referred to as TIPS. They are designed to provide inflation protection. While certain investments like real estate investment trusts and commodities are sometimes considered inflation-sensitive assets, the data provides little support that they are good inflation hedges.

    What will next month's inflation reading be? Nobody knows. Nobody has a crystal ball! Fortunately, we don't need a crystal ball to address inflation in our portfolios.

    I think the number one takeaway is to build a diversified portfolio with asset classes that have shown to outpace inflation over the long term, rebalance back to your targets, and build a portfolio based on your risk tolerance and return expectations.

    Look, if all this seems a little overwhelming. Get some help!

    Shameless plug here…. This is exactly what we do here. we look at tax planning, investment planning, income planning, and Estate planning.

    Final Disclaimer:

    "We appreciate you joining us today for this episode of The Fiscal Blueprint.

    Be sure to visit fiscalblueprint.com to access the most recent content available including all past shows.

    Remember it's not about the money but about your life!

    Having a mindset and living a life of abundance rather than scarcity will change the direction of your life forever!! Enjoy the Journey!!!

    "Opinions voiced in this recording are for general information only and not intended to offer specific advice or recommendations to any individual. All performance references are historical and no guarantee of future results. All indices are unmanaged and not available for direct investment."

    31 min

About The Fiscal Blueprint: Retirement Built Right w/ Financial Coach Jeff Montgomery

From the publisher's feed

Financial Coach Jeff Montgomery discusses a variety of financial topics to keep you focused on what's truly important in life. It's not about pie charts and spreadsheets.......it's about the journey! And good financial decisions can be the fuel for the journey of life!

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