Member Blogs

  • The Basics

    There are some basics that will help anyone get started financially, or keep going in the right direction. The fundamentals outlined here are accredited to the Alliance of Comprehensive Planners. Save regularly. It’s a good idea to save at least 10% of your annual gross income. Gross income is your income before any deductions, including taxes, are taken from your pay. Your savings can be into an emergency fund, or into a retirement account, or a combination of both. Even after you retire, you should have about a 10% cushion in what you spend of your income to allow for emergencies and unusual expenses. Have enough liquidity. You should have emergency savings to pay for unexpected expenses without running up credit cards. A good initial goal is to try to accumulate 10% of your annual earnings in a savings or money market account. Eventually it’s a good idea to have three to six months of your regular expenses in this account. Once you have accumulated a good emergency fund, you can invest in some mutual funds outside your retirement accounts. Pay off your credit cards and other consumer debts. If, when you start your emergency savings, you need to pay down the credit cards, do that while you’re building up emergency savings. Once the credit cards are paid, then don’t charge more on the cards then you can pay off each month. While car loans and 0% financing can help you acquire assets without paying too much in interest, you shouldn’t let these debts be a major part of your monthly budget. For unusual expenses that are planned, like vacations, save enough in advance rather than incurring debt for them. Buy a home that’s the right financial size for you. You want a home that meets your needs, but doesn’t burden you financially. For most people, a home that is appropriate for them financially is 1.5 to 2.5 times their gross annual income. A household that makes $100,000 can easily afford $150,000 $250,000 home. The mortgage on a home, ideally, is no more that 80% of the value of the home. To purchase that $250,000 home, have $50,000 for a down payment. The mortgage on the home has some tax advantages, and does not need to be paid off aggressively like credit cards and other consumer debt. Maximize your human capital. The biggest asset you have, and the one over which you have the most control, is you. Get training and formal education to have a career that you enjoy, that supports you in a comfortable lifestyle. If you stay on track with these basic fundamentals, the chances are good that you will progress through your financial life in a healthy manner. People who are behind in the financial life cycle often have one or more of these basic fundamentals that manage poorly.
  • L-R: Jennifer Crews, Frank J. Corrado, Chris Grohman, Frankie Corrado, Jean Otte at the recent NJ Strategic Design + Tech Meetup The decision to make the entrepreneurial leap isn't something you reconcile over lunch with a friend, after attending the latest infomercial by the guru-of-the day, or after surviving another fit of frustration dealing with the same, intractable, intolerable situation at your current place of employment.
  • A little planning is what many older Americans need if they are still working and worried.
  • My twin daughters got their first real jobs last summer, a common rite of passage through adolescence and good preparation for increased independence as they began their college adventure. I was a very proud parent. My kids would finally earn their own money and learn responsibility – or so I thought.
  • Jane Young, CFP, EA Sometimes the simple things can make the biggest impact on our lives.  One of the most important steps toward achieving financial success is to fully understand where you spend money.   Increasing your awareness of how much you have available to spend and where you spend this money helps you become more intentional in your spending. Studies have found that many of our actions are based on habit rather than conscientious decisions.  This is true with the food we eat, our daily routines and our spending habits.  By tracking your expenses you may discover spending patterns that are preventing you from achieving your financial goals. This may seem obvious, but if it’s been a while since you took a serious look at your spending habits, it may be time to track and evaluate your spending.  You don’t need an expensive software package, just a pen, paper, and a calculator.  Review your credit card statements and bank statements over the last 6 months and track your monthly expenses.  If you spend a lot with cash you may need to keep a journal, for a month, to monitor where you are spending your cash.  Don’t leave out the quarterly and annual expenses in your review.  Compare your expenses to your net income to determine how much is left at the end of each month. This exercise should be enlightening and you will probably be surprised at the amount you spend in certain areas.  Think about your financial goals and evaluate how you are actually spending money in the context of your goals.  Are you maintaining an emergency fund and saving money to meet long term goals such as retirement, a new home, a new car or college education for your children?  Create a spending plan that supports your financial goals. You may find it helpful to systematically set aside or invest money to build an emergency fund, invest for retirement or save for college tuition.  If this money is put aside, it may be easier to become accustomed to living on the remaining funds. Regardless of your income level, the secret is truly understanding how much you can spend and being intentional about how and why you spend your money.   Budgeting is about setting financial goals and priorities, not keeping you from doing what you love.   If it’s a priority to spend a lot of money on eating out, taking a vacation or buying a new car and it fits within your financial plan, then enjoy yourself.   Alternatively, if you are spending too much in one area consider enjoyable alternatives.   For example, meet friends for happy hour rather than dinner at an expensive restaurant. Being aware of your spending helps you spend more intentionally and weigh the trade-offs of every purchase.  The simple act of reviewing your past spending habits will make you stop and think before making spending decisions in the future.
  • Hello! Recently a client told me her husband liked me, but did not like to come meet with me because he didnt understand what I was talking about. Ouch. Ive resolved not to assume people know what Im talking about. Today, I define a few common investment terms. Read on to learn more! Best, Michelle Morris, CFP®, EA BRIO Financial Planning When my son had braces, I dutifully drove him 127 times to the orthodontists office. At the end of almost every visit, the orthodontic assistant would summon me and tell me what they did. There were wire changes, which had different colors or was it different gauges (both?) and this was all being fine-tuned based on tooth movement(?). She also talked about his palate, his bite and other various orthodontic things. She usually told me he needed to do a better job brushing and flossing and to come back in 6 weeks. I understood the last bit and spent the rest of the time thinking about what I would have for dinner. Every profession has jargon, and mine is probably among the worst. Today I define some of the more common terms related to investing. What is a stock? A share of stock represents ownership in the company. Stocks are also called equities. When you own stock shares, you are a shareholder. Shareholders have a claim on future earnings of the company. The earnings may be paid out as dividends to the shareholders. * Nearly every investment portfolio should have some stocks they have outperformed other asset classes over time. Key words here are over time. What is a bond? Simply put,a bond is an IOU. When you buy a bond, you are loaning a company, or a government, money. The issuer of the bond pays interest and when the bond matures gives you your original loan amount back. So in short, stockholders are owners and bondholders are lenders. So which stocks and bonds should you buy? Buy all of them! The best way to do that is with a mutual fund. A mutual fund is a basket of many stocks or many bonds. Some mutual funds have both! For example, the Vanguard Total Stock Market Index Fund is designed to provide investors with exposure to the entire U.S. stock market. How many stocks are in that fund? 3,575. Three thousand five hundred seventy-five! Do you like Apple? Its in there (its the top holding). Like Amazon? Its in there. Like Berkshire Hathaway? (aka Warren Buffett). Its in there. Like CubeSmart? Never heard of it. Its a self-storage company. Its in there too. * However, not all companies pay dividends. A growing company may choose to reinvest earnings back into the company for further growth. These are called growth stocks. Some companies dont have earnings! (Yet). Are there other investment terms that you are wondering about? Send me an email and Ill cover them in a future newsletter.
  • This month Im doing a twist instead of reading its What I am Watching. A series of videos called Dan Solins Investing Secrets. They are short and on point. One of my favorites is Market Returns are Great Returns. Only 62 seconds long, enjoy!
  • Last month I talked to a 26 year old woman just getting started in life about the fundamentals of fiscal fitness. Fundamental number one: Save at least 10% of what you earn. Right now. Today. Automate the savings so it disappears before you even see it. Last month I also talked to a couple in their 60s their biggest lament We always said wed save tomorrow.
  • “2 Minutes With Magis Wealth Planning” is published on the second Friday of every month.  It is comprised of five brief thoughts that we’ve come across during the course of our daily reading and research.  It summarizes data points that we find both relevant and interesting on various topics including investments, retirement, taxes, industry news, etc.  Through the first five months of the year, almost 50% of the S&P 500 Index’s total return has come from only 14 companies, with the top 5 comprising about 33% of the total return (with AAPL leading the way). Some have said that this is an argument against  However, we agree with a recent article by Bob French at Retirement Researcher that it is, in fact, the exact opposite. Without diversification in a top-heavy market like has occurred this year, you have to be able to correctly predict (or guess) which stocks are going to be the market drivers in that given year.  It seems easy in retrospect – no one claims to be surprised that AAPL is up ~33% year to date.  However, it is actually underweighted in actively traded global mutual funds when taken collectively compared to AAPL’s market capitalization.  So, taken as a whole, professional money managers have been wrong about AAPL this year so far.  Of course, AAPL performed in line with the S&P 500 Index last year and actually underperformed in 2015.  The point is, predicting the future is not easy, and while diversification doesn’t result in homeruns, it ensures you don’t miss out completely. It’s not always easy to make the transition from saving for retirement to spending in Many retirees spend less than they can afford in order to avoid dipping into their nest egg for fear of running out of money later in life. Here’s some useful advice from Santa Clara University finance professor Dr. Meir Statman (as penned in his recent WSJ article): Don’t put off spending for enjoyment if you have an adequate retirement portfolio, because most people are less inclined to spend money as they get older due to physical limitations or personal reasons (e.g. illness or death of a spouse). A household headed by an 80 year old spends 43% less than a household headed by a 50 year old, which is why we do a detailed cash flow projection every year with our clients – to help identify if they can (or should) be spending more money. And to provide them with the peace of mind (based on real data) that it’s financially prudent to do so. Other nuggets of wisdom from Dr. Statman from the same article: 1) Don’t wait until you’re gone before bequeathing the majority of your estate – this deprives you of the joy of giving.  2)  Don’t try to beat the market – to do so requires a higher risk level at a time when most can’t afford to do so because their working years (i.e. “human capital”) are behind them.  3)  Be careful not to cross the line between frugality and miserliness – it prevents people who have enough money from enjoying it.  4) Young people tend to underestimate their longevity while older people tend to overestimate it.  He cites data that a person reaching age 65 today can expect to live until their mid-80’s with 25% living past age 90 and 10% living past age 95. An article in the June edition of the Journal of Financial Planning cites several alarming statistics, including that 64% of Americans do not have a will and only 71% of Americans do not have either a medical directive or a general power of attorney. These basic estate planning documents are not difficult or very expensive to put in place, but are important to have – but not for you.  These documents go a long way in easing the burden for your loved ones being left behind. The Chart of the Month: This chart shows that while the S&P 500 Index has finished in positive territory about 80% of the time over the last 20 years, it is also very common to have rather large market corrections during the year.
  • MONEY TALKS When most of us hear the term “reverse mortgage” there is usually a negative connotation associated with the phrase. It’s hard to pinpoint why these two words leave such a sour taste in our mouths when you consider that most of us don’t even know anyone with a reverse mortgage. Furthermore, when pressed on the issue of why reverse mortgages are bad, the standard response is usually; “Ummm, I don’t know. I just heard they were bad because they take advantage of senior citizens.” Perhaps you are subconsciously hearing Henry Winkler’s smooth cadence from the reverse mortgage TV commercial while thinking of a poor widow from Nebraska who just lost her family home. The truth of the matter is, due to some recent legislative changes to protect the consumer, a reverse mortgage is no longer a loan of last resort. If fact, in the right circumstance, it can be used as a very effective financial planning tool to preserve your wealth. What is a Reverse Mortgage?  A reverse mortgage is home loan that allows you to own your home without having to make monthly mortgage payments. Instead of making monthly payments, like you would with a traditional mortgage, the loan balance on a reverse mortgage is paid in one lump sum when the borrower moves out, sells the home, or passes away. One popular myth circulating among the public is that the bank can kick you out of your home if the mortgage balance exceeds the value of the home. This is simply not true. As long you live in the home, keep it insured, pay taxes, and maintain the property, the bank can never force you to move out or sell the home. Another common misconception is that your family could get stuck with a big mortgage debt. When the borrower passes away, your family has two options. They can either purchase the home, for 95% of the appraised value or the mortgage balance (whichever is lower), or sell the home. If they choose to sell the home and the home value exceeds the mortgage balance, they can keep any remaining equity. Conversely, if the mortgage debt exceeds the value of the home they can walk away without owing a nickel. Since the loan is guaranteed by the Federal Housing Authority (FHA) Mortgage Insurance Fund your family can never be liable for any amount over the value of the home. Why Should You Consider a Reverse Mortgage?  The use of home equity in a retirement-income plan is becoming a more popular tool used by financial advisors today because of the flexibility and protection it affords their clients. For many Americans, their home is their largest asset, yet under a traditional model the accessibility to this asset is nonexistent. Integrating a reverse mortgage into a financial plan may allow clients to tap into their biggest asset that otherwise has been hiding under their nose. In fact, Wade Pfau, Professor of Retirement Income at the American College of Financial Services, states; “the reverse-mortgage option should be viewed as a method for responsible retirees to create liquidity from an otherwise illiquid asset, which in turn can create new options that potentially support a more efficient retirement income strategy.” Integrating a reverse mortgage into a retirement plan can be a great option for seniors who want accessibility to the equity in their home and the comfort of knowing they can age in place. Are You Eligible?  In order to be eligible for a reverse mortgage the borrower(s) must be competent, at least 62 years of age, and have equity in the home. They must have the financial resources to cover taxes, insurance, and maintenance costs. Federal debt cannot exist and any existing mortgages on the property must be paid off (which can be done with the loan proceeds). Lastly, a receipt of a counseling certificate from an FHA approved counselor must be provided. In order for the property to be eligible it must serve as your primary residence, meet FHA property standards and flood requirements, pass an FHA appraisal, and be maintained to meet FHA health and safety standards. What Now?  Thanks to the Reverse Mortgage Stabilization Act of 2013, many safeguards were put in place to protect borrowers from taking on too much debt. However, as with any other loan, there are risks involved. “Unquestionably there can be misuses of the product. But the problem is the use, not the product” says Harold Evensky, Professor of Personal Financial Planning at Texas Tech University. Understanding the complexities of the loan and how to best integrate it into your financial plan are critical to success. Speaking with a CERTIFIED FINANCIAL PLANNER™ and/or FHA approved counselor would be a good start to finding out if you could benefit from a reverse mortgage.
  • Rich Allen The Right Business Model 80% percent of all businesses fail within five years, and smaller enterprises are even more vulnerable. Too many business owners work themselves and their teams into the ground, never knowing why they can’t turn a profit. The result is often a tremendous loss of revenue and employees. Inspiring your team is critical to any business’ success, and it
  • 529 Plans

    If you want to contribute to the higher education of a loved one, a 529 plan might be worth considering.  It can be a way to put away money for this education goal with some good tax breaks. Money in a 529 plan can be withdrawn for qualified education expenses for the designated beneficiary from an eligible education institution. The designated beneficiary is the potential student. This is often a child or grandchild. Contributions to the account are considered completed gifts to the beneficiary, however the beneficiary can’t withdraw the money. That’s up to the custodian, which can be the contributor to the account. Qualified education expenses are tuition, fees, books, supplies, equipment, room, and board required for education for a beneficiary who is enrolled at least half time at an eligible education institution. The equipment can include a computer and peripherals for education. To find an eligible education institution, you can look at the Free Application for Federal Student Aid, FAFSA, which is available at This list includes universities, colleges, and trade schools. One of the most tax efficient uses of a 529 plan is to begin investing as soon as the student is born and issued a Social Security number, for the account application. Growth from the money you invest is not subject to income tax if withdrawals are used for qualified education expenses. For example, if you invest $1,000 a year for 16 years and get a 6% return, you’d invest $16,000 and have over $27,000. You could save that money for education outside a 529 plan, but you’d pay tax on that growth. If you are a Colorado resident and put the money in the Colorado 529 plan, you’ll also get a state income tax deduction. What if your potential student doesn’t pursue higher education? If withdrawals are not made to cover qualified education expenses, you will pay ordinary income tax on the growth and a 10% penalty. There might be some other alternatives to paying taxes and penalties. The beneficiary can be changed to a family member of the designated beneficiary, with family including siblings, step siblings, aunts, uncles, cousins, children, parents, or in-laws. If the student receives a scholarship from an eligible education institution, a withdrawal from the 529 plan in the amount of the scholarship can be subject to income tax, but not the 10% penalty. If paying for education for more than one student in a family is something you’re considering, a 529 plan may be a good vehicle to fund education. If the funds aren’t needed for one student, they can be transferred to a relative. If you don’t mind the money staying in the account for a while, the funds could even be used for the next generation. But if the chance of taxes and penalties on withdrawals are a big concern, be careful before contributing to a 529.
  • This month Blue Blaze Financial Advisors joined a growing community of startups, big companies and retail businesses moving into Bell Work’s the former Bell Labs megalith structure in Holmdel. Somerset Development is reimagining the Eero Saarinen designed masterpiece into a live, work, play space complete with an indoor quarter mile Main Street, hotel and restaurants. It's located in Holmdel, NJ , right off exit 114 of the Garden State Parkway.
  • Find where you are on the Financial Life Cycle to determine the state of your financial health.
  • Carol Broadbent  Finding The Money Thinking of launching a start-up? Ready to pull the trigger on that great product idea you and your buddies hatched over a few drinks? Here's the ugly truth: Most start-ups fail. The typical start-up lasts 20 months and burns through $1.3 million in financing before closing its doors. So what are the Do’s and Don’ts of start-ups? And what is the
  • March 9th, 2017 marked an interesting anniversary in the world of investing.  On this date, we celebrated the eight year anniversary of the current bull market which as of this writing, remains intact. It is the second longest bull market in history (the longest being October 1990 to March 2000) and during this period the US stock market (S&P 500) has returned over 250%! What’s interesting is just how fearful the investing world seems to be given the crazy news cycle marked by Trump’s latest tweets, constant political wrangling, North Korean missile tests and a Russian conspiracy de jour.    Mix in above average stock valuations (relative to history) and it’s no surprise that we are hearing more and more of our clients indicating they want “safe” investments for what they think will most certainly be a market crash.  Now we have long believed and written many times that we don’t know what the stock market will do in the next few days, weeks or months.  What we do know is that bull markets do inevitably end, and yes, there will be a bear market (defined as a 20% decline in stocks) again at some point.  We just don’t know exactly when this will happen, when it will end and when we should re-enter the market. However, we do know that when bear markets do end (with an average return to prior levels of about 3.3 years), it’s best to be invested in order to take advantage of what is typically a strong rebound. But herein lies the conundrum, if we know a bear market is coming, shouldn’t we invest our portfolio in “safe” assets like 100% bonds?   Quite simply:  No- not if we are investing for the long term. The reason for this is, as indicated by the oxymoronic title of this blog post, it can be very dangerous to be safe when investing over a long period of time.  By forgoing risk and accepting “safe” returns from say a 100% bond portfolio, we are ironically, taking on even MORE risk by sacrificing the underappreciated magic of compounding returns over the long term. To illustrate this, we have designed a draconian scenario comparing two basic investment portfolios over a 20 year period. Here is the scenario:  A 45 year old couple starts with a healthy $750,000 portfolio and wants to retire at age 65 with $3,000,000.  They commit to contributing $15,000 per year to their portfolio.  Since they think we’re going to have a bear market soon, they are concerned they won’t reach their goal.  So in our simplistic scenario, they have two choices The “Safe” Portfolio and the “Dangerous” Portfolio.  Let’s define each: The “Safe” Portfolio:  100% bonds, comprised of 50% short term US government bonds and 50% intermediate term US government bonds.  The starting point is $750,000 and the investor contributes $15,000 per year as they save for retirement over 20 years.  For annual growth, we will assume historical returns (from 1926 – 2016) of 4.31% per year. The “Dangerous” Portfolio:  60% stocks (60% large cap US, 20% small cap US, 20% international) and 40% bonds (50% short term US government bonds and 50% intermediate term US government bonds). Again, the starting point is $750,000 and the couple contributes $15,000 per year.  Annual growth in this portfolio is assumed to be the historical growth rate of 8.74%. The “Bear Markets”:  As you would expect, without the stomach-churning bear markets the higher returning portfolio with stocks will be much higher after 20 years of compounding.  But what if we added two loud and nasty “growls” from the Bear?  What if we added a bear market of a 20% stock market decline (0% decline for the “Safe” portfolio and a 12% decline for the “Dangerous” portfolio) in Year 2 and then another awful bear market in Year 16?  For this awful Bear in Year 16, we’ll assume a repeat of the historically worst annual return of each portfolio in the last 50 years.  For the 100% bond portfolio, it’s a 1.15% decline- not bad at all.  For the “Dangerous” Portfolio it’s a 20% decline- ouch! The Result:  What might be surprising to some, is that even with two terrible bear markets, the “Dangerous” Portfolio far out performs the “Safe” Portfolio.  Looking at the chart below, we see that our retirement saving couple will NOT reach their goal of a $3,000,000 portfolio in retirement because their “safety” cost them dearly.  In fact, the difference between these portfolios is $935,000 with the “Safe” Portfolio at $2.027 million and the “Dangerous” Portfolio at $2.963 million!  That is VERY expensive safety!!! Now we must temper our conclusions with a few “real world” factors.  First, as our couple moves closer to retirement we would certainly monitor and modify the allocation to align with their retirement date.  Second, we would also implement “psychological firewalls” to help keep the couple fully invested in a growth portfolio.  This typically includes a tailored portfolio of individual high quality bonds, providing assurance of cash flow as retirement approaches.  Third, in order to keep this simple, this scenario does not assume systematic re-balancing of the portfolio, which we also execute for clients. But the bottom line is this:  No one really knows when the next bear market is coming even though we all know the next bear market IS coming.  But even if it comes in 2018 and even if there’s a worse decline 5 years before retirement (in this scenario), it is still much more beneficial to stay vigilant about keeping a balanced portfolio.  Because the irony is, our attempts to keep a safe & conservative portfolio actually results in taking on much more risk that we thought.  In this case, the “price” for this risk is almost $1,000,000!
  • Retirement Stats For Everyone I was surfing the web and found an article on Retirement Stats Every Baby Boomer Should Know:  A lot of baby boomer are worried about retirement.   If you are worried about your retirement, you are not alone.  A large number of workers nearing the end of
  • Confronted By Major Political Crisis, The U.S. Financial System Barely Blinked In a week in which American democracy confronted a major political crisis, the stock market barely blinked. The Justice Department appointed a special counsel to investigate ties between President Trump’s campaign and Russia, and troubling leaks sprang from the White House at a breathtaking pace. Yet the value
  • Real estate property values have been increasing. The average Boulder County residence exceeded 20 percent compared to the last assessment two years ago.
  • The recent worldwide ransomware attacks are a reminder of the importance of cybersecurity. Taking measures to regularly update your software and never clicking on any attachments or links from sources you are not familiar with will help prevent attacks on your systems.
  • Despite The Circus In Washington, Stay Focused On Economic Fundamentals The circus in Washington is an incredible distraction, but the fundamental economics driving American wealth continue to show considerable strength. The sideshow does make it hard to stay focused on what’s really important. But even the National Federation of Independent Businesses was distracted by the sideshow in
  • Trump Victory On Health Care And Strong Economic Data Push Stocks To New All-Time High President Donald Trump enjoyed a major legislative victory on May 4th, when the House of Representatives passed a bill to repeal and replace Obamacare. If the Senate and the House can reconcile their differences over the legislation, the savings on health care spending will pave the way for a major tax
  • Jane Young, CFP, EA As you enter your 50s it becomes increasingly important to incorporate retirement planning into the management of your finances.  Your 50s and 60s will probably be your highest earning years at a time when expenses associated with raising children and home ownership may be tapering off.  It’s crucial to take advantage of the opportunities during this time to shore up your retirement nest egg. One significant retirement mistake is the failure to assess your current financial situation and understand how much is needed to meet your retirement goals.  Many underestimate the amount of money required to cover retirement expenses which may result in delaying retirement.   Consider hiring an advisor to do some retirement planning and help you understand your options, how much money is needed, and what trade-offs may be required to meet your goals. Another common mistake is to move all of your retirement funds into extremely conservative options, as you approach retirement.  With the potential of spending 30 to 40 years in retirement, it’s advisable to keep a long term perspective.  Consider keeping your short term money in more conservative options and investing your long term money in a well-diversified portfolio that can continue to grow and stay ahead of inflation.  As you approach retirement, it’s also important to avoid making emotional decisions in response to short term swings in the stock market.   Emotional reactions frequently result in selling low and buying high which can be harmful to your portfolio. Many in their 50s and 60s have more disposable income than at any other stage of life.  Avoid temptation and be very intentional about your spending.   Avoid increasing your cost of living with fancy cars and toys or an expensive new house as you approach retirement.  Instead, consider using your disposable income to pay down your mortgage or pay off consumer debt to reduce your retirement expenses. Another common pitfall is spending too much on adult children including your child’s college education.  The desire to help your children is natural and admirable but you need to understand what you can afford and how it will impact your long term financial situation.  Place a cap on how much you are willing to contribute for college and encourage your kids to consider less expensive options like attending a community college or living at home during their first few years of college.   They have a lifetime to pay-off reasonable student loans but you have limited time to replenish your retirement funds. Finally, a failure to care for your health can be financially devastating.  If you are healthy you will probably be more productive and energetic.   This can result in improved job performance with more opportunities and higher income.  If you are in poor health, you may be forced to retire early, before you are financially ready.   You also may face significant medical expenses that could erode your retirement funds.
  • Hello! Has your adult child boomeranged back to the nest and having trouble finding work? Are you helping out your parents or other people financially? You may be able to claim them as dependents on your tax return and/or deduct the medical expenses you pay for them. Read on to learn more. Best, Michelle Morris, CFP®, EA BRIO Financial Planning Recently I helped two clients amend prior year taxes to claim two adult children as dependents in one case and an elderly father in another case. The combined savings was thousands. These scenarios are increasingly common and many people arent aware of the dependent rules or that claiming someone other than your minor/college age child is even possible. Like much of the IRS code the rules are somewhat byzantine. Four Tests must be met to claim someone as a dependent on your taxes: 1) The person is Not a Qualifying Child Test. Basically this means you are not claiming your child in the usual way which is a child under age 19 or a student under age 24. There is no age requirement for this test. 2) Member of Household or Relationship Test The person must either live with you all year as a member of your household OR be related to you. (See Relatives who dont have to live with you in Publication 17 ) 3) Gross Income Test To meet this test the persons gross income for the year must be less than $4,050. Gross income is all income that isnt exempt from tax. Social Security benefits are not included unless the benefits are taxable. If the persons other income is less than $4,050 then the Social Security is not taxable. 4) Support Test To meet this test, you must provide more than half of the persons total support during the calendar year. Total support includes amount spent to provide food, lodging, clothing, education, medical and dental care, recreation, transportation and similar necessities. For lodging the amount of support is the fair rental value of the lodging. If someone meets all 4 of these tests you can claim them as a dependent on your tax return. If you paid medical expenses for this person you can deduct those if you itemize deductions. You can also deduct the medical expenses you pay for anyone who would have been your dependent but they failed test #3, the gross income test. If you could have claimed someone as a dependent in a prior year, you can still amend open tax years which are 2014, 2015, and 2016. 2013 is also open if you happened to file an extension that year. (This information is correct as of this writing in May 2017) Confusing? Of course, its the Federal Tax Code! But it could be worth pursuing.
  • Last month I called the MA Department of Revenue for a client whod received an obtuse tax notice. Delightful hold music at the DOR such as Ive Got you Babe by Sonny and Cher. They probably havent changed their hold music since that song came out. What looked like an officious and vaguely scary sort of notice turned out to be nothing. If you get a notice about your taxes, first step is DO NOT PANIC. Even if the notice says you owe them money, it is frequently wrong. If someone else prepared your taxes, ask them for advice on what to do. If you prepared your taxes, get on the phone with the IRS or your state and get more information before writing any checks. Initial notices are sent via snail mail. If you get an email out of the blue purporting to be from the IRS or the state taxing authority, it is a phishing scam.