2016 End-of-Year Actions to Enhance Your Retirement Savings

Making contributions to your retirement accounts is guaranteed to strengthen your financial and retirement plan. This year December 31 is on a Saturday, which means you should be planning those 2016 contributions now and targeting Thursday, December 29 to have them completed. Take these actions to keep your retirement on track:

Detail of blackbird eggs in nest

Retirement Nest Egg

1. Make the maximum contributions to your employer-sponsored retirement plan — 401(k), 403(b), 457, or TSP.

If you have not contributed the annual maximum amount of $18,000 to your employer-sponsored retirement account in 2016, you can reduce your taxes significantly by doing so now. The 2016 employee limit is $18,000 (without catch-up contributions). Many plans allow you to accelerate your contributions before the end of the year; we support that action, provided you can still manage your cash flow and expenses reasonably well. The best way to avoid having to accelerate your contributions toward the end of 2017 is to set your automatic deferral percentage in January. (To help your planning: 2017 contribution limits are the same as in 2016.)

For other retirement plans such as a traditional IRA or Simplified Employee Pensions plan or SEP, check with your financial planner or tax professional.

Note: The amount of taxes you save is based on your marginal tax rate for an individual or joint return. If you’re in the 33% bracket, for every additional $1,000 you contribute to your 401(k) style retirement plan, you should save $330 in taxes.

2. If you are age 50 or older, take advantage of catch-up contributions.

At age 50 or older, you are allowed to make additional contributions to your employer-sponsored retirement plan — 401(k), 403(b), 457, or TSP. In 2016, you can defer an additional $6,000 from your salary into your retirement savings account for a maximum of $24,000 ($18,000 plus $6,000).


3. If you turned 70½, remember to take your Required Minimum Distribution.

After you reach the age of 70½, you are required to take a Required Minimum Distribution (RMD) from your retirement savings by December 31 of each year (except for the first time, when this distribution can be delayed until April 1 of the following year).

Therefore, if you happened to turn 70½ this year (2016), you can either: 1) take your first annual RMD by December 31, 2016 or 2) delay your 2016 RMD until April 1, 2017. In either case, you must also take your 2017 RMD by December 31, 2017.

If you turned 70½ last year (2015) or before, you must take RMDs from all of your IRA and 401(k) retirement accounts prior to December 31, 2016 or be subject to a maximum penalty of 50% of the amount you should have withdrawn. These distributions are taxed as ordinary income for the current tax year.

RMD tips:

Request that your annual RMD be broken into a monthly or quarterly automatic distribution in 2017 to avoid future RMD penalties.

If you have several retirement accounts, you can take your RMD from each account (which will preserve a record within the account that you in fact took the RMD), or you can take it from just one or some accounts, as long as it adds up to the full required RMD of your total retirement accounts.

wrapped up 100 dollar bills.

Use a QCD to minimize taxes and thereby enhance your retirement savings.

4. Use the Qualified Charitable Distribution (QCD) rule to minimize taxes. 

If you would like to avoid paying taxes on your RMD, and you are planning to make charitable contributions for 2016, you can do both in one step by taking advantage of the QCD rule. This rule allows you to use your RMD (or a portion of it) as a donation to a preferred charity or charities and have that amount of your distribution excluded from your gross income calculation for tax purposes.

Caveat: You must make the distribution to the charity directly from your IRA or 401(k) plan! To benefit from this rule, you must have a check issued by your broker or investment advisor directly to the charity or charities. Taking the distribution yourself and then paying the charity using your own checks subjects you to taxes on the distribution. You are limited to a maximum annual charitable contribution of $100,000 under this rule. Call your brokerage or investment advisor or tax professional for assistance if needed.

QCD Tip:

If you want to use the QCD rule to make multiple contributions to different charities, make a list of those charities and the dollar amounts, and send your list to your investment advisor or broker now to get ahead of the December rush. Also, keep a copy of this list handy; you can use it next year because the QCD rule became permanent in 2015.

In summary, be kind to yourself, your family, and your favorite charity — and help your retirement plan — by making retirement account contributions for 2016 before it’s too late!

Qualified Charitable Distributions from IRAs

If you are age 70 ½ or older and have money in an IRA account, you must, as you may know, take a “required minimum distribution” or RMD from your account (excluding Roth IRAs). Not doing so can result in big trouble and penalties with the IRS. If you want to meet this requirement without increasing your taxable income — and support your favorite charity in the process, you might consider utilizing the Qualified Charitable Distribution (QCD) rule before the end of the calendar year.

wrapped up 100 dollar bills.

A QCD is an otherwise taxable distribution from a traditional IRA, owned by an individual who is age 70 ½ or older, that is paid directly from the IRA to a qualified charity. The maximum dollar amount of a QCD is limited to $100,000 per year, per taxpayer. A married couple, where both are subject to an RMD, may each contribute up to $100,000.

To complete a QCD from an IRA to a charity, you must:

  1. Be subject to a Requirement Minimum Distribution.
  2. Work with your IRA custodian and request a check made payable directly to the charity.
  3. Make certain the distribution does not have tax withholding.

While many custodians will mail the check directly to the charity, consider having the check made payable to the charity, then sent to you for forwarding to the charity. This allows you to keep a paper trail of the request and know the date of mailing.

Taking advantage of a Qualified Charitable Distribution takes a little extra coordination, but the benefit to your charity, and your taxes, make it worth the effort.


In addition to this Bell Finance Blog, you may want to read the insights at
the Bell Career/Life Coaching Blog.


A New Savings Plan to Help the Disabled Attend College: 529A

Millions of students will enroll in college this year, many using money from a 529 tax-advantaged savings plan to help defray the ever-growing cost of higher education. These plans have been in existence, in one form or another, since the late 1980s and have become the cornerstone for college financial planning. Two of the greatest benefits of 529 plans are: account earnings grow free from federal income tax, and withdrawals are tax-free as long as the proceeds are used for qualified higher education expenses.

Young disabled man studying at the table at home

What if significant disabilities stand between your child and college?

What if Disabled?

But what if significant disabilities stand between your child and college? Any family with a disabled member will tell you: even if college expenses are not in the future, it doesn’t mean significant educational expenses will not exist. Fortunately for these families, a new tax-advantaged savings plan was introduced in late 2014, through the Stephen Beck, Jr., Achieving a Better Life Experience Act, known by the acronym ABLE Act.

Long List of Covered Expenses

The plan, referred to as 529A or 529ABLE, is similar to an education 529 plan in that earnings on the contributions are not taxed as they accumulate and are tax-free when withdrawn if they are used to pay for qualified disability expenses for the designated beneficiary. The list of qualifying expenses is long, covering a greater range than 529 expenses, and includes education, housing, transportation, employment training and support, technology and personal support services.

Easier than a Special Needs Trust

Having a 529A account does not disqualify an individual from receiving federal and state aid for the disabled, such as Supplemental Security Income or Medicaid, as long as the amount held in the 529A does not exceed $100,000. This account can offer an easier, cheaper option than a special needs trust.

There are significant differences between the 529 and 529A plans. Final regulations for the 529A plan will be issued by the IRS later this year, and should be reviewed to determine if this plan could be right for your family. In the meantime, you can find more information by visiting http://www.savingforcollege.com/529-able-accounts/

Tax Season: Important Actions to Take

Bookkeeper.Tax season is upon us! As you know, that means you must file your taxes by April 15, unless you file for an extension. However, April 15 is also an important deadline for other financial matters.

April 15 is the deadline for making contributions to a Traditional or Roth Individual Retirement Account (IRA) for the tax year — in this case, 2015. If you did not make a contribution by December 31, 2015, you still have time. Unless you are subject to contribution phase outs*, you may contribute up to $5,500 (and an additional $1,000 if you are over the age of 50) to a Traditional or Roth IRA as long as you do it before the April 15 deadline.

Traditional and Roth IRAs have their tax benefits, but they differ from one another. With a Traditional IRA, you are able to defer taxes paid on earned income today and allow that money to grow tax-deferred. This can be beneficial especially if you expect your tax rates to decrease when you are older and in your retirement phase. As for a Roth IRA, you do not receive the tax deduction on today’s earned income, but the benefit is that your contributions grow tax-free. Roth IRAs are the better choice if you expect your tax rates to increase when you are in retirement and need to access the funds. The one caveat with IRAs, like most retirement accounts, is that you cannot gain access to the funds penalty-free before the age of 59½, with a few exceptions*. Before you make a contribution for 2015, be sure that you do not need that money for your current living expenses.

The tax benefits of contributing to a Traditional or Roth IRA are great, especially over a long-term horizon and if you are making regular annual contributions. So when you are filing your taxes for the April 15 deadline, do not forget to consider contributing to an IRA for 2015.

*If you have questions regarding the contribution phase outs,
exceptions to withdrawing funds from an IRA, or any other tax issue,
please contact your CPA.

Did You Make the Social Security Cut Before the Loopholes Closed?

You may have heard the chatter about some Social Security loopholes being closed as part of the budget deal struck by House Republicans and President Obama. This is a basic summary of what these changes are and how they might affect you.

The two key Social Security strategies that will no longer be available to most are “File and Suspend” and “Restricted Application”, which have been used by married couples for years to increase their lifetime Social Security benefits. Because these unintended loopholes have become very expensive for the Social Security Administration, particularly as more and more people have been taking advantage of them, the strategies are being dropped.

File and Suspend allows one partner to file for Social Security but then immediately suspend collecting it, thereby accruing a higher benefit for later and making the lower-earning partner eligible to receive spousal benefits during the period prior to reaching age 70 when the full benefit becomes available. The new ruling makes this strategy unavailable starting May 1, 2016 (180 days after the passing of the Bipartisan Budget Act of 2015). However, if a person turns 66 on or before April 30, 2016, they will be able to file and suspend and have their spouse claim a spousal benefit (given the spouse is 62 before December 31, 2015.)

Restricted Application allows the spouse with a lower benefit to restrict collecting their own benefits, which allows them to receive the spousal benefit instead. The new ruling makes this strategy unavailable for any spouse not reaching age 62 by December 31, 2015. A person turning 62 by or on December 31, 2015 will be able to file a restricted application for spousal benefits when he or she reaches age 66.

Act Now!
If you are within six months of reaching your full retirement age and your spouse turned 62 by the end of 2015, there may be action you need to take ASAP — before you miss out on what could mean thousands of dollars in spousal benefits.

Talk to your financial planner today if you are not sure of your eligibility or how this change in ruling affects you. We are reaching out to our eligible clients to take action before the April 30, 2016 deadline.

Planning for Market Volatility and the Trouble with Target-Date Funds

As part of our ongoing financial planning work, we assist our clients by recommending an allocation for their retirement plan accounts (401k, 403b, etc.) that cannot be directly managed by us because of plan regulations. We analyze the fund options within the plan and recommend an allocation to ensure the asset breakdown of the account is in line with their managed accounts and the optimal investment strategy advised by the client’s financial plan.

We recently completed this analysis and annual recommendation for a client who later asked us why we avoided all the target-date funds at his disposal. We have always been wary of target-date funds, primarily due to the lack of individual customization. Every person invested in the same target-date fund is assumed to carry the same risk tolerance, return objectives and time horizon. This, of course, will never be the case.

An August 31, 2015 article issued by CNBC, Some Target-Date Funds Miss in the Market Turmoil, details another concern we have with this type of fund. Each target-date fund (even those associated with the same retirement date) has a different makeup of bonds and stocks that is governed by the fund’s glide path. From that CNBC article: “Much of a target-date fund’s performance is determined by the fund’s ‘glide path’. That’s the formula a target-date fund uses to determine its mix of assets over time. All target-date funds get more conservative over time, shifting out of stocks and buying more bonds as they approach the target date.” Some funds have a glide path that ends, with no future allocation changes, at the retirement date, and others glide right past it and continue to get more conservative for years following. If you are invested in a target-date fund, it is important to understand the current allocation of the fund and the ultimate path it will take.

A fund’s unique glide path will determine exactly how conservative the fund will be upon reaching the target-date year. This makes for impactful allocation and performance differences between funds that one might otherwise misperceive to be quite similar. This concept is especially obvious during times of stock market volatility.  “For example, take two target-date funds designed for investors who retire this year: The Fidelity Freedom 2015 fund, which has more than 43 percent of its holdings in bonds and cash, lost 2.5 percent for the month through August 27, while the Wells Fargo Advantage Dow Jones Target 2015 fund, which has a nearly 71 percent stake in bonds and cash, lost only 0.87 percent over the same period.”

The Fidelity Freedom 2015 fund has 28% more exposure to equities than Dow Jones Target 2015 and, therefore, it experienced a more dramatic drop during the recent market correction than its counterpart. Losing 2.5% in less than a month can be devastating to someone who plans to retire this year and needs their retirement account to fund their lifestyle. If an individual has other sources of income, it may be less painful, but target-date funds have put the onus on the investor, or perhaps the investor’s Certified Financial Planner™, to know the fund’s equity exposure and whether that exposure makes sense for his or her retirement goals.

In summary, we prefer to customize retirement accounts to meet our client’s specific needs and reassess the appropriateness of the allocation on an annual basis. A person’s financial plan should be the investment guide rather than a fund family’s preconceived notion about how universally conservative a retiree should be.

Strengthening Your Financial Plan
with Retirement Account Contributions

As we get closer to April 15, tax day in the United States, this may be a helpful reminder: you are still eligible to make certain retirement account contributions for last year (2014) even if you missed the December 31, 2014 date. Making contributions to your retirement accounts is a good way to strengthen your financial and retirement plan. Follow these tips to keep your retirement on track.

1. Did you max out contributions to your employer-sponsored retirement account in 2014? Will you do so again in 2015? If so, think IRA contribution!

If you have maxed out your employer-sponsored retirement account salary deferral last year and are likely to do so in 2015 (2015 max: $24,000 with catch-up), pat yourself on the back: Good job! Then consider making a contribution to an IRA (Individual Retirement Account) or Roth IRA for tax year 2014. There is still time to make this contribution for last year right up until the tax filing deadline date of April 15. If eligible, you are allowed to contribute up to $5,500 to either an IRA or Roth IRA (but not both) plus $1,000 catch-up for those 50 or older.

❯ Note: Eligibility to contribute to any type of IRA is dependent on having earned income in the contribution year, and you may be subject to income phase out rules, so please check with your tax advisor regarding eligibility rules, income limits, and deductibility rules.

2. If age 50 or older, take advantage of catch-up contributions.

If you are age 50 or older, you are allowed to make additional (known as “catch-up”) contributions to your employer-sponsored retirement plan [401(k), 403(b), 457, or TSP] and/or to a traditional IRA or Roth IRA.

For employer-sponsored retirement accounts:

  • For 2014, you are able to defer the catch-up amount of $5,500 in addition to $17,500 for a total maximum deferral amount of $23,000.
  • In 2015, the catch-up increases to $6,000 in addition to the increased amount of $18,000, for a total maximum deferral amount of $24,000.

For IRA or Roth IRA, for both 2014 and 2015, you can contribute a catch-up amount of $1,000 for a maximum contribution of $6,500 annually.

3. Are you self-employed and have a retirement plan already established for your small business?

If you are self-employed, you have the right to contribute part of your income to a self-employed retirement savings plan like a SEP IRA (Simplified Employee Pension); a solo 401(k), i.e. a (i401k); or SIMPLE IRA (Savings Incentive Match Plan for Employees). Setting one up, or maxing out your contribution for the current year if you have one, is an excellent way for those self-employed to shelter income.

You still have time as the employer to make your 2014 employer contribution to the plan. Be sure to check with your tax advisor for the exact amount you are able to contribute, but remember: sheltering taxable income decreases your taxable income for the year, which in turn builds up the strength of your retirement plan.

❯ Note: Check out the IRS website for IRA Contribution Limits.

In summary, if you are wondering how to prioritize your retirement savings, we generally recommend maxing out your employer-sponsored retirement account first before funding a traditional or Roth IRA. Focusing on your employer-sponsored retirement account is especially important if your employer matches a percentage of your contributions—so you do not miss out on that free money. If your employer does not offer a plan and you are not self-employed, then an IRA (traditional or Roth) can be a great place for retirement contributions. Please remember, you should discuss your own situation with your financial advisor or tax expert before making any major financial decisions.

Be kind to yourself, and help your retirement plan by making retirement account contributions for 2014 before it’s too late!

Two Upcoming Bell Events That May Interest You:

3/18/15 – Wine & Cheese: The Women’s Roundtable: Taking Charge of Your Financial Future. Email Jaye Roundtree to register or for more information.

3/25/15 – Webinar: Financial Literacy & Behavior for Adults and Young Adults. Click here to register or for more information.




The Joy and Anxiety Produced
by Low-Priced Oil

We were amused on January 23 when our Time magazine arrived, dated February 2. We wish we could be so clairvoyant. In any case, we know that a trend is revealed when cheap gasoline makes the cover of Time.

Brent crude oil, the global benchmark, has fallen from $110 per barrel to $50 per barrel in the course of one year. Thanks to advances in technology, including horizontal drilling and hydraulic fracturing, U.S. oil production has risen to nine million barrels per day from five million in 2006, pushing reserves to their highest levels in 80 years. If gas prices fall by two-thirds as oil has done, the average American family could save $2,000 in 2015, equivalent to a 4.5% pay raise.

The rapid change in oil prices has been so dramatic that it has caused anxiety as well as joy. Joy comes because consumers have more money to spend; anxiety stems from the fact that energy is a major player in the U.S. and global capital markets.

Previously falling oil prices were interpreted as weakening demand and a weakening global economy, but the January 17 issue of The Economist asserts that the fall in oil is caused by plentiful supply and not by weak demand. The problem is that although the extra money in the hands of consumers will create new jobs, the cuts in energy production threaten existing jobs. This is why low-priced oil is not all joy.

Creating middle-class-level jobs has generally been a problem for the U.S. economy, although the energy sector has been very effective at creating higher-paying, middle-class jobs. As the global market price of oil falls, American producers are cutting back as they can no longer make a profit. This dynamic creates winners and losers. The American consumer is definitely a winner along with the airlines, China, and Japan. Venezuela, Russia, Iran, Nigeria, and Alaska are big losers. Oil taxes account for 90% of Alaska’s state budget. Alaska collects no sales tax or income tax. Alaska is the poster child for the non-diversified economy. In the long run, it appears that the plentiful supply of oil will persist. American technology will continue to boost production. Saudi Arabia is choosing not to cut production, as they have in the past, to reduce supply and raise prices. They may be trying to destroy or inhibit producers they consider to be enemies (Iran and Iraq). In the U.S., conservation efforts are paying off as Americans are driving less and fuel efficiency continues to increase. As this new normal for energy prices develops, low oil prices will produce more economic joy than anxiety.

Lose the Weight

The top New Year’s resolution, according to USA.gov and the Journal of Clinical Psychology, is to lose weight, but what about trimming down in other areas of our lives?

In financial planning one of the most important “levers” or tools available to improve the strength of a financial plan is a reduction in living expenses. A low-expense plan that can be fully covered by guaranteed sources of income (like Social Security and pension payments) is generally a very strong one. The validity of the plan results is lost, however, without an accurate living expenses figure. This makes it crucial to a financial plan and demands time and effort to better understand.

Anecdotally, we have noticed most people have a very clear idea of what they make, but little clarity around how much they spend. An estimate can be calculated by reducing gross income by annual savings, taxes and other required deductions (like Social Security, Medicare, State Unemployment Insurance and State Disability Insurance). This is a helpful baseline, but to get a more detailed look and determine where to trim, further dedication and examination is required.

The tool we use, the Bell Budget Worksheet, assists with tracking by separating expenses into broad categories including personal, child, recreation, medical, home, etc. Within each group the expenses are sliced thinner. For example, clothing/accessories, club memberships, magazine subscriptions, personal care (hair/cosmetics) can all be found under the category, personal expenses.

Although not a small amount of work, the process can be extremely useful and eye-opening. Generally participants focus on discretionary spending, but fixed expenditures should not be ignored as possible areas for reducing costs. Refinancing or downsizing can have a dramatic impact on the strength of a financial plan.

If you are still searching for a resolution or simply some motivation, why not make this year the year to improve your financial health? Speak with your Certified Financial Planner™ today to review spending and lose the weight.


Register for the February 4 Lunch & Learn “How to Make Your Life Work Financially”. Find out how you can maximize cash flow while minimizing risk and the importance of financial planning for your financial success. For inquiries and/or reservations email Jaye Roundtree.


Two Important Trends for 2015

As an equity investor, there are two important historical trends to be aware of that apply to 2015, both of which are positive for stocks: the Presidential Term Cycle and the Decennial “5” Pattern.

In looking at the performance of the Dow Jones Industrial Average historically during each year of the Presidential term, you can see on the accompanying chart that year three, which 2015 will be, is the best year by far of the Presidential cycle. Since 1897, the Dow has produced an average price return (i.e. pre-dividend return) of 12.2%. The median return is 14.4%. Perhaps more interesting is the lack of downside market volatility in the third year over the last 80 years. When factoring in dividends, the Dow has not lost money in the third year of a Presidential term since 1931. And that was in the middle of The Great Depression when there were obviously some other headwinds for the stock market.

This trend makes sense when you think about it. Politicians need to pull out all the stops to make sure that they and/or their party remain in power, which usually leads to economic and market-friendly policies. It has not mattered what the valuation of stocks has been coming into the third year or how the market has performed leading up to it or who has been in power. It is a very powerful trend with 20 consecutive positive years.


The second trend to be aware of this year is the Decennial “5” Pattern. For whatever reason, years that end in the number five have been unusually strong for the stock market when compared to all other years. Since 1897, the Dow has produced an average price return of 31.4% in years ending in five. The median return is 30.0%. To put the strength of this trend in perspective, the next best group of years is those ending in eight with an average return of 15.3% or less than half of what years ending in five have been able to produce on average historically. In terms of downside volatility, there has not been any. When including dividends, there has never been a losing year for the Dow in a “five year.”

This trend is most likely a statistical anomaly as it is a small sample size with only eleven years to analyze. Also, there is really no good reason for it (at least that we can think of), so the correlation is probably spurious. Regardless, given the strength of this trend historically, it is one to be aware of and monitor as 2015 plays out.