About Gregory Knight, CFP®
I am the founder of Engage Advising located in Oakland, California. My interest in financial planning dates back to my ten years living in Japan. I needed to learn about managing my own finances and investments while living abroad. I love working with folks who want to engage with their finances to improve their well-being. I live in the diverse community of Oakland, California with my husband, Randy, and it is a great place to live. We have a ton of wonderful restaurants, museums, and the East Bay Regional Parks. I love to hike, travel, fly fish and enjoy visiting the wine regions around California. Spending time volunteering for non-profits is also a favorite past time. You never know, you may see me pouring wine at a fundraiser, taking a course through a favorite non-profit or joining a group hike. Keep your eyes open!
Many folks are about to come into a mini-windfall of cash. For these same folks who often complain about not being able to save money, fund an IRA, add to investments, or pay down debt, this is an opportunity. That mini-windfall is a tax refund. Instead of envisioning all of the lovely, disposable, soon-to-be-forgotten things you could buy with your refund, consider buying some financial peace of mind. Here are three things to do with this windfall that would be financially beneficial.
First, pay off debt. Look at your debts; is the refund you are getting enough to completely payoff a debt. If it is, this could be a good choice. Use the monthly payment amount you were making on that paid off debt to make a larger payment on another debt. Work with your financial planner and pay off the debt that gives you the greatest bang for your buck and you’ll be debt free in no time. Your financial planner can tell you which debts and in what order provide the shortest payoff time, or saves you the most money.
Second, build an emergency fund. If you are a two-income household, the emergency fund should be, at minimum, the equivalent of six months total expenses. This includes all discretionary and non-discretionary spending. If you are a single-income household, you should really consider having nine to twelve months of total expenses as an emergency fund. Your tax refund can add nicely to your cash stash.
Third, start or add to investments. If you have your debt under control, and your emergency fund is sufficient, now is the time to add to investments. Your tax refund could be just the ticket. Consult your financial planner and decide whether you should be starting, or adding to, an IRA, a taxable fund, or topping up an existing investment account.
A note about tax refunds; if you are receiving an unusually large refund (and tend to do so every year) now is a great time to meet with a financial planner to figure out why. You should be receiving a smallish-to-zero refund. That way, you are enjoying the benefit of your funds all year and not making a free loan to Uncle Sam.
Keep in mind that using your refund for one of the recommended tips does not have to be an “all or nothing” approach. Be sure to use a small amount to reward yourself and do something like a nice dinner, a day retreat, a spa, or take a cooking class with a friend or significant other. Just don’t blow your windfall on things you don’t need and won’t notice in a few weeks.
As an independent Certified Financial Planner™ I can help you decide how to put your windfall to work for you. Contact me and let’s get started! #talktometuesday #refund #Hireaplanner #bonus #income #cash #CFPPro #tax
This week’s post will be a spotlight on the Roth IRA. As with all information, be sure to ask a professional before making any financial decisions. This post will cover just the highlights of the Roth IRA and may not represent your situation.
Recently, a friend called and wanted to know if she could contribute to a Roth IRA with a contribution date of 2018 to start her five-year clock. What she is referring to is the five-year holding period on a Roth IRA, generally known as the five-year rule. Basically, at age 59½ you are able to withdraw both contributions and earnings with no penalty, provided your Roth IRA has been open for at least five tax years. You can make a contribution for the tax year up until the tax filing deadline and start the clock (as of the tax year) if you have not finalized and submitted your taxes. That is, she could have started her five-year clock dated 2018 for the 2018 tax year, being filed this 2019 season, but unfortunately, she had already finalized and filed her taxes for 2018. Keep in mind, if you are under 59½, you can withdraw your contributions with no 10% penalty, but not your earnings. There are other five-year rules depending on whether you are a beneficiary, or made a Roth conversion. We’ll save those for another time.
Another problem this friend encountered is that she is a SHE, Successful High Earner. She is fortunate to have a good income, but unfortunately being single she earns too much to contribute to a Roth IRA. Her modified AGI (defined in Publication 590-A for Roth IRA) was well above $137,000. When thinking about a Roth IRA, keep in mind the following contribution limits from the IRS:
If your filing status is Married Filing Jointly or Qualifying Widow(er), and your modified AGI is less than $193,000, you can make a full Roth IRA contribution for the year. Between $193,000 but less than $203,000, you get to make a reduced contribution. However, once you earn $203,000 or more, your contribution amount is zero!
Married Filing Separately? Oh, dear…not good news. If you are married filing separately and you lived with your spouse at any time during the year, and you earned less than $10,000, you can contribute a reduced amount. If you earned $10,000 or more, your contribution is zero.
For Single, Head of Household, Married Filing Separately (and you did not live with your spouse at any time during the year), and your modified AGI is less than $122,000, you can make a full contribution. Between $122,000 but less than $137,000 you can contribute a reduced amount. If you earned $137,000 or more, your contribution is zero!
What are those contribution amounts? For 2019 your total contributions to all IRA types cannot exceed $6,000. If you are age 50 or older, you can contribute an extra $1,000 for a total of $7,000.
Now, about those aforementioned reduced amounts. You will need to follow the formula provided by the IRS to calculate your contribution. There is an explanation and a worksheet provided in Publication 590-A (go to IRS.gov and search the most recent Pub 590-A). A quick summary is provided here:
Step 1 – Start with your modified AGI.
Step 2 – Subtract from the Step 1 amount either: a) $193,000 if filing a Married Filing Joint return or Qualifying Widow(er), or b) $0 if Married Filing Separate, and you lived with your spouse at any time during the year, or c) $122,000 for all other individuals.
Step 3 – Divide this result from Step 2 by $15,000 ($10,000 for filing a Married Filing Joint return, Qualifying Widow(er), or Married Filing Separately and you lived with your spouse at any time during the year).
Step 4 – Multiply the maximum contribution limit before reduction by this adjustment, and before reduction for any contributions to traditional IRAs by the result in Step 3.
Step 5 – Subtract the result in Step 4 from the maximum contribution limit before this reduction. This final result is your reduced contribution limit.
For example, Susan’s modified AGI for 2019 is $135,900 and she is age 47 and single. What is her maximum contribution? Ignoring other tax factors and simply considering the formula, Susan would calculate her contribution as follows. Step 1 – $135,900 - $122,000 = $13,900. Step 2 – Step 3 – divide $13,900 / $15,000 = 0.92666, or 0.93. Step 4 – multiply $6,000 x 0.93 = $5,580. Finally, Step 5 – subtract $6,000 - $5,580 = $420. Susan can still make a Roth IRA contribution of $420 for 2019 prior to finalizing and filing her 2019 taxes.
It seems like a small amount, but keep in mind, every bit helps when building your retirement nest egg. Plus, this amount may be the year Susan starts her five-year clock which is very valuable! Or, it could be an unusually high earnings year for Susan. Either way, know the amount each year that you can contribute, and if a Roth is right for you – contribute!
Yes, I love this stuff! As an independent Certified Financial Planner™, I can help you focus on your retirement finances and many other financial planning issues. Contact me and let’s get started. #talktometuesday #getstarted #HowIcanHelpYou #GetHelp #Hireaplanner #CFPPro #savemoney #Roth #IRA #RothIRA #IRS
For the majority of folks who file taxes, it’s now crunch time. Between January and the filing deadline in April (for the majority of filers), we will all be hit with W-2s, 1099s, 1095-Bs, 1098s, annual giving statements, investment statements, and many other forms. All the statements arriving by post and online can be overwhelming.
This can also be a benefit. It’s around tax time that people focus on their financial situation. With all of the forms arriving, it’s a good time to organize and take stock of your situation and schedule a meeting with your financial planner. Here are a few things you can do.
Organize and setup your filing system for the current tax year! While you are receiving all of last year’s tax documents, go ahead and make files for the current tax year. That way, as you accumulate tax documents during the current year, your file is ready. This makes next year’s filing easier.
Identify what you owe and what you own. Tax time is a great time to review and learn about what expenses you have going out monthly and annually. It’s also a great time to take a look at your investment holdings. Most likely you are receiving bank, brokerage, or investment statements so give them some attention.
Make changes if needed. If, for example, you find you owe taxes for the past year, and you owed a similar amount the previous tax filing season, identify why. In many cases, you may simply need to adjust your W-4 withholding allowance through your employer. Early in the year is a good time to do this if you need to have additional taxes withheld.
Schedule time with a Certified Financial Planner™ to get started aligning your goals and resources and putting yourself on-track to a new financial year. The advice can be invaluable and today, CFPs offer a wide range of services and pricing.
Tax time is a great time to meet with your CFP.
Having so many financial documents arriving at one time and preparing to finalize your taxes is a great time for a financial review. You’ll have most of what you need readily available. As an independent Certified Financial Planner™, I can help you focus on your finances month-to-month and not just at tax time. Contact me and let’s get started. #talktometuesday #getstarted #HowIcanHelpYou #GetHelp #Hireaplanner #CFPPro #savemoney #tax #taxtime
- Equity Recipients (RS/RSU SOP ESPP)
- Gen X
Ways Advisor Charges
- Monthly Fee
- Flat Fee
- Assets Under Management
- Monthly: $699 setup & then $149+ p/mo.
- Hourly: $125-$185
- Flat Fee (1-time comprehensive plan): $2,750
- AUM: 0.95%